Jamieson Wellness Inc. (JWEL) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the Jamieson Wellness 2020 Annual General and Special Meeting of Shareholders. Please be advised that reproduction of this audio webcast in whole or in part is not permitted without written authorization from the company. On the call today from the Jamieson Wellness Board of Directors and management team are David Williams, Chairman of the Board; Mark Hornick, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Williams, please note that the prepared remarks, which will follow the formal portion of the meeting, contain forward-looking statements and additional forward-looking statements may be made in response to your questions during the Q&A portion of the meeting. These statements reflect the company's current expectations regarding future events. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond the company's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the factors discussed in Jamieson's filings with the Canadian securities administrators. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. The company does not undertake any obligation to update the forward-looking statements made during this meeting, whether as a result of new information, future events or otherwise, except as 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 audio webcast. A reconciliation of these non-IFRS financial measures can also be found in Jamieson's filings with the Canadian securities administrators. 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 meeting over to Mr. Williams to get started. Please go ahead, sir.

Thank you. Good afternoon. My name is David Williams, Chair of the Board of Directors, and I'd like to welcome you to this annual and special meeting of the holders of common shares of Jamieson Wellness Inc., which I will refer to as Jamieson. For those of you who are shareholders, thank you for joining us today. We also welcome all other guests in attendance. I have on the line Mark Hornick, President and Chief Executive Officer and a director of Jamieson; and Chris Snowden, Chief Financial Officer and Corporate Secretary of Jamieson. We decided to hold this annual and special shareholders meeting in an all-virtual format out of an abundance of caution to proactively deal with the public health impact of the recent coronavirus outbreak and to mitigate the risks to the health and safety of our communities, shareholders, employees and other stakeholders. Our main objective is to ensure that all shareholders have the same opportunities to participate and vote regardless of their geographic location and that everyone stays safe. The purpose of this meeting is to receive Jamieson's financial statements for the year ended December 31, 2019, and the auditors' report thereon; elect directors of Jamieson for the ensuing year; reappoint Ernst & Young LLP as the auditors of Jamieson for the ensuing year; and authorize the directors to fix their remuneration; consider, and if deemed advisable, pass an ordinary resolution ratifying and approving unallocated options, rights or other entitlements under Jamieson's long-term incentive plan; and finally, consider, and if deemed advisable, pass an ordinary resolution ratifying and approving unallocated options, rights or other entitlements under Jamieson's employee share purchase plan. These matters are set out in the management information circular available to shareholders in connection with this meeting. Jamieson elected to send out proxy-related materials for this meeting to shareholders using the notice and access provisions under National Instrument 51-102, Continuous Disclosure Obligations; and National Instrument 54-101, Communications with Beneficial Owners of Securities of a Reporting Issuer. I will refer to these provisions in this meeting as the notice and access provisions. After the formal part of the meeting, Mark and Chris will be making some remarks, and we will follow that up with a question period should you wish to ask questions of them. As this meeting is held virtually via a live webcast, we think it is necessary to set out a few rules for the orderly conduct of the meeting. One, questions can be submitted using the instant messaging service of the virtual interface. Please note that only registered shareholders or duly appointed proxy holders are entitled to submit questions in respect of a motion during the formal part of the meeting. When asking the question, please indicate your name, which entity you represent, if any, and confirm whether you are a registered shareholder or a duly appointed proxy holder. For each question we answer, we will summarize the question and read out loud the name of the person who asked such question and, if applicable, the entity such person represents. Questions may be submitted during the formal part of the meeting but will only be addressed during the question period at the end of the meeting. However, questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. For the purposes of today's meeting, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each item of business after the presentation of all items. If you are a beneficial owner of common shares and have not appointed yourself as a proxy holder and are, therefore, attending this meeting as a guest, you will not be entitled to vote. When you are asked to vote, you will receive a message on the virtual interface requesting you to register your votes. You'll only have a certain amount of time to do so once the poll is open. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I will move and second all motions. I will act as Chairman of the meeting; and Chris Snowden, Jamieson's Chief Financial Officer and Corporate Secretary, will act as secretary. With the consent of the meeting, I appoint Computershare Investor Services Inc. through its representatives as scrutineer to compute the votes of any polls taken at this meeting and to report thereon to me as Chair. The notice call in this meeting, the accompanying management information circular dated March 11, 2020, the consolidated financial statements for the years ended December 21, 2019, and 2018 and auditors' report thereon and the form of proxy have been provided to each shareholder of Jamieson of record at the close of business on March 30, 2020, by mail or electronically in accordance with the notice and access provisions. And I've been advised by Computershare Investor Services Inc. and have been provided with an affidavit of mailing confirming that the notice call in this meeting together with a form of proxy were mailed to each shareholder of record at the close of business on April 8, 2020. With the consent of the meeting, reading of the notice of the meeting will be dispensed with. I therefore declare the proper notice for this meeting has been given. A quorum of shareholders is at least 2 holders of common shares present in person or by telephonic or electronic means and holding or represented by proxy not less than 15% of the votes entitled to be cast at the meeting. I have received the preliminary report on attendance from the scrutineer and have determined that a quorum is present. I adopt this report and as notice has been served in accordance with the Ontario Business Corporations Act and the bylaws, I declare this meeting to be regularly called and properly constituted for the transaction of business. On behalf of the Board, I thank those shareholders who have chosen to attend the meeting virtually today. I also thank those who submitted their proxies in advance. The first item of business is to put before the meeting Jamieson's financial statements for the fiscal year ended December 31, 2019, and the auditors' report thereon. Those financial statements, together with the auditors' report thereon and forming part of the 2019 annual report, were made available to all shareholders of Jamieson by mail or electronically in accordance with the notice and access provisions. We would be pleased to receive any questions you may have regarding the financial statements during the question period later in this meeting. We will dispense with the reading of the financial statements and the auditors' report thereon. The second item of business is the election of Directors. Pursuant to Jamieson's articles, there can be at any time a minimum of 3 and a maximum of 10 directors of Jamieson. As described in the management information circular made available to shareholders in connection with this meeting, there are 8 nominee directors for election as directors. The nominees are: Heather Allen; Louis Aronne; Mark Hornick; Timothy Penner; Catherine Potechin; Steve Spooner; Jason Tafler; David Williams. I declare the meeting open for nominations for the election of directors for the ensuing year or until their successors are elected or appointed. I will now nominate the directors and second the nominations. I nominate each of the persons whose name appears in the management information circular under the heading Election of Directors to be a director of Jamieson until the close of the next annual meeting of shareholders or until their successors are appointed, and I also second the motion. As you know, Jamieson allows for the election of directors on an individual basis. According to our majority voting policy, any nominee who receives a greater number of votes withheld than votes for cast with respect to his or her election by the shareholders in an uncontested election of directors would tender his or her resignation promptly to the Governance, Compensation, Nominating Committee, which will recommend to the Board whether or not to accept such resignation. I should advise the meeting that by virtue of votes already received by proxy, it is clear that all directors will receive more than enough votes to be elected today. I would like to advise the meeting that Jamieson did not receive any further nominations in accordance with its bylaws. I therefore declare the nominations closed. The next item of business is the appointment of auditors for the ensuing year and the authorization of directors to fix their remuneration. I will now move and second resolution appointing the auditors for the current year and authorizing the directors to fix their remuneration. I move that Ernst & Young LLP Charted Accountants be reappointed auditors of Jamieson to hold office until the close of the next annual meeting of shareholders or until their successors are appointed, that such remuneration as may be fixed by the directors, and the directors are authorized to fix such remuneration. And I also second the motion. Unless there are any questions, I will move to the next item of business. The next item of business is to consider a resolution ratifying and approving unallocated option, rights or other entitlements under Jamieson's long-term incentive plan. Pursuant to the policies of the Toronto Stock Exchange, the unallocated options, rights or other entitlements under a security-based compensation arrangement, such as the long-term incentive plan, must be approved every 3 years. The full text of the long-term incentive plan resolution is set out in Schedule B to the management information circular. I note that Jamieson recently made some amendments to the long-term incentive plan to incorporate some suggestions from institutional shareholder services as indicated in our May 12 and May 15 press releases. These amendments will, one, confirm the limit on the value of annual grants of awards issuable to each nonemployee member of the Board under the long-term incentive plan and any other share-based compensation arrangement adopted by Jamieson; two, restrict the ability of Jamieson to make certain amendments to the long-term incentive plan or the terms of any awards or award agreements thereunder without shareholder approval; three, require that in exercise its discretion to redeem any performance share unit upon a change of control of Jamieson, the Board consider, among other factors, the level of achievement towards the performance goals applicable to such performance share unit prior to the change of control; and four, restrict the maximum number of Jamieson shares that may be subject to awards under the long-term incentive plan, being 10% of the issued shares outstanding from time to time by including in such determination awards granted under all equity compensation plans of Jamieson. The long-term incentive plan, the employee share purchase plan and Jamieson's legacy option plan, comprised all of Jamieson's equity compensation plans and amended and restated long-term incentive plan, has been filed under Jamieson's profile on SEDAR. I will now move and second the approval of the long-term incentive plan. I move that the long-term incentive plan resolution set out in Schedule B to Jamieson's management information circular dated March 11, 2020, be approved, and I also second the motion. Unless there are any questions, I will move to the next item of business. The next item of business is to consider a resolution ratifying and approving unallocated options, rights or other entitlements under Jamieson's share purchase plan. Pursuant to the policies of the Toronto Stock Exchange, the unallocated options, rights or other entitlements under security-based compensation arrangement, such as the employee share purchase plan, must be approved every 3 years. The full text of the employee share purchase plan resolution is set out in Schedule C to the management information circular. I will note that Jamieson recently made an amendment to the employee share purchase plan to incorporate some suggestions from institutional shareholder services as indicated in our May 12 press release. The amendment restricts Jamieson's ability to author the allowable purchase price discount under the employee share purchase plan without shareholder approval. An amended and restated employee share purchase plan has been filed under Jamieson's profile on SEDAR. I will now move and second the approval of the employee share purchase plan resolution. I move that the employee share purchase plan resolution set out in Schedule C to Jamieson's management information circular dated March 11, 2020, be approved, and I also second the motion. Unless there are any questions, I will move on to the voting process. As I mentioned earlier, voting today will be conducted by electronic ballot. I will now take a moment to ask that the balloting be open to registered holders and appointed proxy holders. The polls are now open. And at this point, all registered holders and proxy holders who have properly logged in with their control numbers or user names and wish to vote will be able to see on the screen all motions being brought forth at this meeting. The voting will be open for 3 minutes. And once the electronic balloting closes, the voting page would disappear, and your votes will automatically be submitted. Ruth Winker, the Corporate Communications Director of Jamieson, will confirm for us when the polls have closed. Please register your votes by accessing the voting page and selecting the for or withhold buttons next to the name of each proposed director and next to the resolution with respect to the reappointment of Ernst & Young LLP as Jamieson's auditors. Please select the for or against buttons next to the resolution with respect to the approval of the long-term incentive plan resolution and next to the resolution with respect to the approval of the employee share purchase plan resolution. I will now wait for the voting to take place. [Voting]

The polls will close in 1 minute. Thank you, Mr. Williams. The polls are now closed.

Thank you, Ruth. I have been advised by the scrutineer the ballots and proxies deposited for the meeting have now been voted and that each of the resolutions has been carried with the effect that, one, each of the 8 nominees has been elected as a director of Jamieson to serve until the next annual meeting of shareholders or until their successors are elected or appointed; two, the appointment of Ernst & Young LLP as the auditors of Jamieson has been approved, and the Board of Directors has been authorized to fix their remuneration; three, the long-term incentive plan resolution has been approved; and four, the employee share purchase plan resolution has been approved. We will file a report setting out the voting results on the SEDAR website. The formal items of business as set out in the notice of meeting have now been dealt with. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. This concludes the formal portion of today's meeting. I will now turn the meeting over to Mark Hornick and Christ Snowden for some remarks. Following their remarks, there will be questions-and-answer period. Mark?

Great. Thanks, Dave, and good afternoon, everyone. Thank you for joining us today at our 2020 Special and Annual Shareholders Meeting. We hope that you're all staying healthy and safe during this unprecedented time. We'd like to take a few moments to review 2019 as well as business so far in 2020. I'll then turn the call over to Chris to discuss the financial highlights from 2019 and from Q1 2020. Fiscal 2019, as you all know, was successful for Jamieson Wellness. The year ended strongly. We delivered healthy revenue growth, margin expansion and performance at the high end of our 2019 revenue, adjusted EBITDA and adjusted earnings per share guidance. We maintained robust sales momentum with the Jamieson brand, both domestically and internationally, as well as returned our specialty brands to growth, successfully executed our domestic China strategy, broadening our product portfolio and entering the domestic retail and e-commerce channels. We delivered solid adjusted earnings growth while investing in new markets and new channels, further strengthening our long-term growth opportunities. We once again increased our quarterly dividend and entered into an amended and restated credit agreement with existing and new lenders, which improved our borrowing rates as well as increased our available capacity for future strategic growth opportunities and eliminating quarterly debt payments. In 2019, we saw significant benefits in leveraging consumer insights and our marketing efforts to drive incremental branded growth, especially on the Jamieson brand. We believe that there's further upside over time in harnessing our wider 5-brand portfolio and developing programs to introduce our very large consumer base in Jamieson to the benefits of all of our brands as our consumers live throughout the different stages of their health and wellness journeys. To help facilitate this, we brought our significant marketing resources together and formed a holistic marketing commercial organization under the leadership of Mike Pilato. Mike now leads the combined Jamieson and specialty branded business as President of Jamieson Canada with a mandate to drive incremental growth through the holistic marketing of our brand while leveraging the important customer relationships we have by channel to make those plans come to life for the shopper. Throughout 2020, Mike and his team will develop incremental plans to make this vision come to life and drive incremental growth for years to come. 2020 has thus far presented challenges as well as opportunities that our Jamieson brand and team has met head on. We've been producing vitamins and supplements that have been trusted by consumers around the world for nearly 100 years. Now more than ever, as we navigate COVID-19, we feel a great responsibility to demonstrate why we have earned that trust by continuing to support the health and wellness of our employees, our consumers and communities throughout this time. We put many incremental safeguards in place to ensure a healthy work environment for all of our employees as we work towards the same goal of ensuring shelves remain stocked with products that consumers rely on for their health and wellness. At the onset of the pandemic in January, we were able to secure additional supplies of raw materials to maintain consistent production, and our teams have pulled together to assist our retailers from home and in the field. During the first quarter of 2020, we adapted to this rapidly changing global environment, and we continue to adjust as the environment continues to change. We have seen an increased demand for our products, leading to robust growth in our branded businesses, both in Canada and international markets. Our team has done an excellent job in maintaining operations and meeting this incremental demand as we focus on ensuring our consumers continue to have access to the products they rely on. I'd really like to take a minute to thank each and every one of our employees for their hard work during these difficult times. We are so proud of how the Jamieson family is handling the current situation, taking care of our consumers, our customers and each other. With that, I'd like to turn the call over to Chris to discuss the financial highlights of 2019 and Q1 2020.

Thank you very much, Mark, and good afternoon, everyone. As Mark mentioned, we are pleased with our performance in 2019. We achieved the high end of our full year 2019 guidance for revenue, adjusted EBITDA and adjusted earnings per share. When we look at full year 2019 versus 2018, revenue increased 7.9% to $345 million. Jamieson branded revenue increased by 9.1%, and adjusted EBITDA increased by 12.2% to $75.9 million. Net income was $31.7 million, and adjusted net income increased 13% to $38.1 million. Earnings per diluted common share were $0.80, and adjusted earnings per diluted share increased 12.9% to $0.96. As Mark mentioned, the first quarter of 2020 was a time of unprecedented demand for health and wellness products amid the COVID-19 pandemic. We worked hard to ensure we could continue to deliver our trusted products safely to our customers around the world. When we look at the first quarter 2020 compared to the first quarter of 2019, we generated 17% revenue growth, 15% growth in adjusted EBITDA and 21% adjusted net income growth, all as a result of higher volumes from an increased focus on health and wellness. In Q1, we began to see strong category trends, with the Jamieson Brands significantly outpacing the industry growth in our food, drug and mass accounts. Our Jamieson Brands segment grew by 25% led by a 22% increase in our domestic Jamieson sales. Our international sales increased by 51% as a result of strong demand in multiple geographies led by growth in China and Eastern Europe as demand for immunity SKUs and supplements increased. Lastly, in the quarter, earnings per diluted common share were $0.20, and adjusted earnings per diluted share were $0.19. In February 2020, we established our outlook for fiscal 2020. It remains unchanged as we continue to anticipate net revenue in a range of $364 million to $376 million, representing growth of 5.5% to 9%; adjusted EBITDA in the range of $80 million to $84 million; and adjusted diluted earnings per share in the range of $1.02 to $1.10. In closing, we remain focused on the health and wellness of our employees, consumers, customers and communities as we navigate this unprecedented time. We will continue to work hard to deliver our trusted products to consumers around the world. Thank you for joining us this afternoon. Please stay healthy and safe. With that, I would like to now turn the call back to Mr. Williams for Q&A.

Thank you, Chris. I will now open the floor for any questions. I ask that all attendees who would like to ask a question use the instant messaging feature of the virtual interface to do so. We will answer as many questions as time permits. And I'll give attendees a moment to type in their questions. For each question we answer, we will summarize the question and read out loud the name of the person who asked such question and, if applicable, the entity such person represents. Questions which were already answered or that are redundant or repetitive will not be answered. Now I'll wait for any questions to be submitted.

Thank you, Mr. Williams, there are no questions.

Thank you very much, Ruth. Well, with that, I would thank everybody for attending this meeting. And we look forward at Jamieson to another good year going forward. That will end this call. Thank you very much. Stay safe.

Ladies and gentlemen, this concludes today's meeting. You may now disconnect, and have a pleasant day. Speakers, please stay on your line.