Delivra Health Brands Inc.

Good morning, and welcome to the Delivera Health Brands, Inc. Year-End 2023 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. Presenting on today's call will be Gord Davey, President and CEO, and Jack Tassie, CFO. 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. The information communicated by Deliver Health Brands 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 slash 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 Health Brands, Inc. Mr. Davey, please proceed.

Good day, and welcome to our fourth quarter and year-end shareholder investor conference. From a results perspective, it has been a tremendously productive year for Delivera Health Brands, and we are extremely excited and pleased to be here with you today to share those results. I am Gord Davey, the President and Chief Executive Officer of Deliver Health Brands, and I'm joined by our Chief Financial Officer, Jack Tassie. Deliver Health Brands is EBITDA positive. That is the way we'd like to begin our shareholders conference. We have improved our EBITDA by $10 million over the past three years, and we'd like to let our shareholders know we are committed to the continuous improvement of our company's financial position. During our last two conference calls, Jack and I have taken you through historical favorable results outlining continued improvements in volume, gross margin percentage, and cash flow while staying focused on our financial responsibility by continually lowering our SG&A expenses, all leading to a year that has created positive EBITDA. As we take you through the positive results, we would like to share again the excitement and commitment by transition and name change to Deliver Health Brands, a global health and wellness company that is uniquely positioned in the consumer packaged goods segment as well as the constantly developing cannabis space. Deliver Health Brands strives to create a culture centered around inclusion, diversity, and teamwork. We have created our vision, mission, and values around this culture. The vision of Deliver Health Brands is We are building a community of wellness naturally, which is followed by our mission of Deliver Health Brands. We are pioneering the alternative wellness space with innovative products that bring relief to everyday health issues and enhance the quality of life. These are reinforced by the values of Deliver Health Brands. Trust, passion, agility, drive, courage, and humility. I am sure everyone on this call has suffered from a sleepless night, anxiety, joint or muscle pain. We encourage you to look for our products at leading retail outlets such as Shoppers Drug Mart, Loblaws, Circle K, Publix, and Wegmans, just to name a few. Also, if you're looking online for solutions for these ailments, you'll see us prominently positioned on Amazon and Shopify. Our year is not being without risks and challenges. It is what you do in these challenging times that help define your future. Some of the examples of these challenges are we still continue to have COVID hangover, which involves our approach to work, home life, and how people are shopping. Inflation continues to be at a high level, which affects margins, capital markets, and people's willingness to spend. There is global political uncertainty, which creates reservations in markets and global expansion. There's also been increased investment in retail operations through increased listing fees, shelf fees, and margin requirements, as well as larger delivery costs. Our team is being faced with these factors, which is not unique to deliver health plans. However, it does put constant pressure on our margins and on our operations and finance teams to remain rigorous in our spending approach. Amid dealing with these challenges and risks, Deliver Health Brands has produced historic positive results. Jack will later take you through in more detail. However, here are the top line results of our fiscal 2023 year-end results. We are very pleased to report that for the third consecutive quarter, for the first time in company history, Deliver Health Brands is reporting fiscal year positive EBITDA results. Fiscal 2023 has produced a positive half million in EBITDA dollars versus a negative 2.7 million in previous year results. Let me outline the significance of this achievement. In 2020, as we began our transition to a health and wellness company, we made a commitment to turn the company into a profitable entity. We presented and communicated our strategic plan to develop the company into a profitable, sustainable, growing company that our shareholders can have confidence in. This time in 2020, we were negative $9 million in EBITDA. Over the past three years, we have erased this negative amount to now present a positive position in our EBITDA. Our plan has continued to evolve, grow, and prosper. We communicated our strategy to focus on global distribution, grow our U.S. market, increase our infused topical presence and expand our brands with innovation while focusing on key partnerships with marketing and awareness programs. We have done what we said, and we will continue to accelerate our growth through specific strategic plans. Let us continue with the positive year-end results. We hurtled the largest year from 2022 and increased our revenue by $1.7 million, or 20% increase. We've increased our gross margin percentage from 32% to 49%, a significant increase from 9% back in 2020. We have also lowered our SG&A expenses by 23% year over year. Higher revenue, higher margins, and lower costs, which equals improved EBITDA. It's certainly the right formula. How was this accomplished? Well, it was through the execution of our strategic initiatives. Those high-level strategies were around U.S. expansion through products, innovation, channels, and customers, growing our international growth through products, territories, and our customer base. We accelerated our infused topical platforms with products, channels, territories, and customers. We focused in on key partnerships through impactful customer programs, e-commerce expansion, and innovation. These were the strategic pillars Jack and I talked about in our last investor shareholder call. We have continued to do what we said we would do, and we are executing this phase of Deliver Health Brands. We have also expanded our airport coverage, adding innovation to our DreamWater lineup with DreamWater Sleep Gummies and DreamWater Immunity. We encourage you to look for our products as you travel. We have also entered into new hotel agreements in Las Vegas, as well as a group of Hilton Hotels. We will continue to add to this portfolio. How do we continue to improve at an accelerated rate? We have developed a strong and focused strategy to drive sustainable growth and enhance shareholder value. Strategic updates encompass several key areas. We will continue to execute our outlined strategies above. Those execute on detailed plans for 2024 and beyond with our pillars of growth. Those pillars of growth for Deliver Health brands are current accounting acceleration, new account growth, Launching of LibRelief in the U.S. for e-commerce and retail outlets. E-commerce growth through expansion and increased investments. International growth, expanding current areas with new innovation, products, and territories. LibRelief infused distribution through increased penetration in Canada and also expansion globally. And then the focus on mergers and acquisitions. Exploring new opportunities constantly. This is what excites us at Deliver Health Brands. Our strategies and executions work. We will continue to focus on scaling up our business. We have closely monitored industry dynamics and identified emerging trends that present significant growth opportunities for Deliver Health Brands. By leveraging our expertise and market insights, we are well-positioned to capitalize on these trends and strengthen our competitive position. Our diverse portfolio of high-quality healthcare products and services continues to expand. We have launched new innovative offerings to address the evolving needs of our customers while exploring new markets and sectors for potential growth. We recognize the importance of innovation and technology in today's rapidly changing healthcare landscape. Through our ongoing investments in research and development, we are actively exploring new technologies and solutions to improve customer and patient outcomes, increase operational efficiencies, and drive long-term value for our shareholders. Success of these strategies depended on investment, execution, and marketing. We have the team and the plan to accomplish this. I would like to call out a specific channeling customer that we have partnered with to help accelerate our growth. We are extremely pleased with our announcement that we have entered into our second partnership with Canopy Growth, the Tweed division, for our market-leading, live-relief-infused topicals. This licensing agreement allows increased capacity for production, expanded sales coverage, global expansion opportunities, and allow for further acceleration in the growing cannabis medical channel. This enhances our initial partnership with Canopy's medical arm, Spectrum Therapeutics, which has been a highly successful partnership. We have completed our transition to a health and wellness company and are positioned for unprecedented growth. We are not without challenges. However, our team and our board are prepared to take on the challenges and continue to bring long-term sustainable growth to deliver health brands, our shareholders, and investors. In closing, we extend our sincere appreciation for your continued support and trust in Deliver Health Brands. We are committed to executing our strategic vision, driving sustainable growth, and maximizing shareholder value. Together, we will build a healthier future for all. Jack will now take you through some detailed financials and a business overview. We appreciate your support in our vision of Deliver Health Brands. I will now pass it on to Jack Tassie.

Thank you, Gort. This is Jack Tassie, CFO of Deliver Health Brands, and it is a pleasure to be on this call to update shareholders, potential investors, and capital markets on our progress. Before providing the high-level financial overview, it is important to state that all commentary provided should be explained in the context of the latest financial statements and MD&A filed by the company. Still, 2023 is an outstanding year for us, to say the least, despite challenging capital markets, inflation, and interest rates that affected all of us or all businesses and consumers. As indicated on our Q3 call, the company is no longer burning cash as a typical startup that is very reliant on raises to fund losses, and it is important to shareholders and potential investors to be aware of, as this differentiates the liberal health brands from many small cap companies that are not profitable yet. Building on positive adjusted dividend Q3, the company achieved its best every quarter in Q4 of fiscal 2023. Net sales in Q4 were 3.3 million. This led to a net sales of $9.8 million for the year, and this is ahead of last year by $1.7 million on a net basis, or 20%, and led to an EBITDA of half a million dollars for the year, up from a negative EBITDA of $2.7 million in fiscal 2022. This helped us to maintain our cash position after the sale of the Lucky Lake asset back in December 2022. Being in a good cash position helps us to focus on growth opportunities and to provide necessary working capital for upcoming growth and sales and any marketing initiatives along the way. As a carry forward of our observations from prior calls, there is no change to our position on the fact that this unique business model works and is scalable, meaning that the company has the potential of becoming a brand powerhouse. Secondly, the relevance of our products and ability to compete with very well-backed clients in the health and wellness space. Heightened inflation over the last 12 months did not help a lot of businesses and created pressures on consumers' choices, which are to focus on essentials, Delivera is no exception. The retail landscape is under pressure, as per the government's initiative to control prices with the support of CEOs of large retailers' discussions. It is no surprise we felt this pressure in Canada in the form of lower sales, and however, we did not increase prices in 2023, and we did our best to find other ways to keep prices the same year over year and find savings somewhere else. For the long term, our existing grants focus on sleep and pain reduction and reduction of anxiety. Our product offerings are intelligent and premium products. They simply work, and such problems in sleep and pain are simply part of our lives as consumers to manage on a self-care basis and are not going away, which adds to the sustainability argument to our business. Similar to prior calls, I will unpack the year by building briefly on the same key performance indicators presented in prior calls. Starting with the first key performance indicator, which is to uncover potential in the U.S. and international markets for the company's Dreamwater brand and SKUs. This strategy was explained in prior investor calls. As communicated, managing customer mix and focusing on international distributors continues to be the strategy and continues to pay off significantly. The company is now in a position where it has a few large customers with relevantly standard needs to fulfill their orders versus having a very scattered group of small customers with each customer having its own programs and special offers, so on and so forth. Of course, having large customers comes with its own risks. However, growing the brand requires standardization and serving such customers in our view. We continue to see growth quarter over quarter, and we will build on what we have done so far in new channels. This takes us to the second key performance indicator, which is maintaining and growing a gross profit and gross profit margin. Just on a high level, from a background perspective, the company succeeded year over year in increasing its gross profit or gross margin from 24% in fiscal 2021 and then to 32% in fiscal 2022, and then 49% in fiscal 2023. Again, as a result of the company's focus on the right customer-distributor mix, which means lower sales fees, lower distribution costs, and given that our indirect costs are semi-fixed costs, this helps in keeping our margin stable, if not maximizing margin over the long term. And I'm referring here to an example as of warehousing costs. The company managed to increase its gross profit and profit margin from 32% last year to 49% this year as a result of the above. In dollars, this is an increase from $2.6 million to $4.8 million. This means an additional $2.2 million flowing into our adjusted EBITDA streams. The company took provisions on write-downs of $398,000 compared to $776,000 last year. This provision relates to aging SKUs. Although our sales increased by $1.7 million or 20% year-over-year, that inventory on a total basis remained at the same level of $2.3 million in fiscal 2023 compared to $2.2 million last year. and we are hoping for this leveling to help us reduce our write-downs in the future. The company considers such margin percentages as financial achievements, especially when compared to prior years, and this comes as a result of the company's ability to manage its customer and distributor mix. This takes us to the third key performance indicator, which is targeted improvements in adjusted EBITDA, We said in the past that our objective was always to break even, to demonstrate that our business model works and is scalable, and to help us invest in needed marketing and innovation programs and projects. Now that we are in a positive adjusted EBITDA position, I think this KPI should change to maintaining our adjusted EBITDA position going forward. The company reported around half a million dollars of positive adjusted EBITDA in fiscal 2023 as a result of sales in Q4 this year, up from a negative EBITDA of $2.7 million, negative EBITDA of $2.7 million in prior year or in the prior year. And this comes as a result of the higher margins and lower SG&A costs. Given everything else being equal, the company sees an increased trend of adjusted EBITDA into the future. Last time in our Q3, we added scalability as a KPI to be monitored and measured by the company. Our financial and strategic achievements opens the scalability door, which means including new brands. The company is in a mature position to becoming a brand powerhouse and can add new brands into its business model given its scalability. However, financing is required to scale up, and the company will continue to look into relevant opportunities as they come through. To conclude, management is very delighted that it fulfilled its promise with this unheard-of turnaround given the company's strategic review back in 2020, and we are hoping this translates to shareholder value along the way. As I always said, or as we always say, we are hoping that the performance of Delivera Health Brands gets noticed by existing shareholders and potential investors, given how the strategic choices we made were made by the company that led to this financial success. Thank you very much for listening. And with that, we will open the call for questions. Operator?

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. you will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue.

Once again, if you have a question, Please press star, then one, now.

As there are no questions from the phone lines, this concludes the question and answer session. I would like to turn the conference back over to Gord Davey for any closing remarks.

Thank you so much. We would like to thank you for your time and commitment to deliver health grants We have successfully transitioned to a health and wellness company that is uniquely positioned in the infused cannabis space. We have strategically executed a plan for long-term sustainable growth and profitability. We are excited to now take Deliver Health brands to the next phase of accelerated growth.

Thank you so much for your continued support. Be well.

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