MediPharm Labs Corp. (LABS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual and Special Meeting of MediPharm Labs Corp. Please note that this meeting is being recorded. I would like to introduce Geoff Marr, chair of the meeting. Mr. Marr, please go ahead.

Good morning. It is now 10:00 a.m. My name is Geoff Marr, General Counsel of MediPharm Labs. I will act as today's chair of the meeting. On behalf of the Board and management of whom David Pidduck, Chief Executive Officer; Greg Hunter, Chief Financial Officer; and Keith Strachan, President are in attendance. Today, I welcome you to the Annual and Special Meeting of Shareholders of MediPharm Labs Corp. We are pleased to host this meeting through this virtual meeting platform accessible to all our shareholders regardless of physical location. Following the formal portion of today's meeting, management will be making closing remarks. As this meeting is being held online via live webcast, it is appropriate to set out a few guidelines for online participants for the orderly conduct of this meeting. Questions can only be submitted by registered shareholders and duly appointed proxy holders entitled to attend and vote at the meeting. [Operator Instructions] Questions submitted in respect of motions, if any, will be addressed prior to the close of voting. Questions with respect to MediPharm Labs generally will be answered after the completion of management's closing remarks following the formal business portion. For the purpose of the meeting today, voting on all matters will be conducted by online ballot through the facilities of this webcast. If you have already voted by depositing a proxy or voting instruction form prior to the proxy cutoff time, there is no need to vote again unless you want to change your vote. By voting again, you will be revoking your previous vote. I would now like to call the meeting to order. With the consent of the meeting, I hereby appoint Evan Gropper, Corporate Counsel, to act as secretary of the meeting and Lori Winchester of TSX Trust Company to act as scrutineer of the meeting. The notice calling this meeting was delivered to all shareholders of record as of the close of business on May 18, 2022, being the record date for this meeting. I have received proof of service of such notice and ask that a copy of the notice and proof of service be annexed to the minutes of this meeting as a schedule. As a reminder, only registered shareholders who held shares in their name as of the record date or their validly appointed proxy holders are entitled to vote at this meeting. I have been advised by the scrutineer that a quorum of shareholders for transaction of business is present. The scrutineers' report on attendance will be provided to the Secretary of the meeting and incorporated into the minutes. I now declare that the meeting is regularly called and properly constituted for the transaction of business. We will now commence the formal business of the meeting. The business of the meeting is described in the company's management information circular dated May 20, 2022, which accompany the notice of meeting and is available on SEDAR. The notice management information circular and the form of proxy relating to this meeting were mailed to shareholders in accordance with applicable law. The company has received the statutory declaration from TSX Trust Company, which I ask the secretary to append to the minutes of this meeting. May I have a motion to dispense with the reading of the notice of this meeting and to take the notice as read?

I move that the reading of the notice of meeting be dispensed with and that the notice be taken as read.

I second the motion.

I declare the motion carried. We will conduct voting on the matters before us by a poll. On a poll, every shareholder as of the record date entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. I now instruct the scrutineer to open the polls. This will allow you to choose to vote on each resolution immediately or wait until conclusion of discussion on all resolutions prior to casting your vote. If you have already voted by depositing a proxy or voting instructions form prior to the proxy cutoff time, there is no need to vote again unless you want to change your vote. We will run through each of the items on the agenda in turn. Once discussion on all items of business has concluded, I will give you time to cast your votes and then declare voting closed on all resolutions. The results of the meeting will be publicly released and will be available on our website following the meeting. The first item of business is the tabling of the audited financial statements of the company for the financial year ended December 31, 2021, and the auditor's report thereon, which I have asked to be done. Shareholders are not required to approve the financial statements. You can obtain a copy of the financial statements and auditor's report on our website and on SEDAR. The next item of business is the election of directors. Only persons nominated in accordance with the procedures set out in the company's bylaws are eligible for election as directors. The management information circular of the company dated May 20, 2022, sets out the name of management's 5 nominees for election to the Board. No other nominees for election to the Board were duly received. Therefore, pursuant to the company's advanced notice bylaw, nominations from the floor of the meeting other than for management's nominees will not be accepted. Accordingly, the only persons nominated at the meeting for election as directors are the following named nominees: Chris Taves, Chris Halyk, Shelley Martin, Miriam McDonald and David Pidduck. I declare the nominations closed.

I move that each of the persons nominated for election as directors of the company be elected to hold office for the ensuing year or until their successors are elected or appointed.

I second the motion.

Are there any questions submitted from any registered shareholders or proxy holders? If there are no questions, please cast your votes. If you have already voted prior to the meeting, there is no need to vote again unless you want to change your vote. The next item of business is the appointment of KPMG LLP, the current auditor of the company, as auditor to hold office until the next Annual Meeting of Shareholders. May I have a motion?

I move that KPMG LLP be appointed as the auditor of the company to hold office until the close of the next Annual General Meeting of Shareholders and that the directors be authorized to fix the auditor's remuneration.

I second the motion.

Are there any questions submitted from any registered shareholder or proxy holder? If there are no questions, please cast your votes. If you have already voted prior to the meeting, there is no need to vote again unless you want to change your vote. The next item of business is the proposed amendment to the company's equity incentive plan to increase the plan limit from 10% to 15%, such that the maximum number of common shares of the company that may be issued upon the exercise or settlement of awards under the plan shall not exceed 15% of the company's issued and outstanding common shares from time to time. All is more fully described in the company's management information circular dated May 20, 2022. If approved, the proposed amendments to the plan will be implemented through the adoption of the 2022 equity incentive plan in the form set out as Schedule C to the circular. The full text of the resolution being placed before the meeting for approval of the amendments to the equity incentive plan is set out on Page 35 of the circular. An affirmative vote of a majority of the votes cast will be sufficient to pass the resolution approving the planned amendments. Are there any questions submitted from any registered shareholder or proxy holder? May I have a motion?

I move that the resolution approving the proposed amendment to the equity incentive plan as set out in full in the circular be approved.

I second the motion.

Please cast your votes on this resolution. If you have already voted prior to the meeting, there is no need to vote again unless you want to change your vote. For those who have not voted on all the resolutions placed before this meeting, please do so now as the polls on the resolutions will be closed momentarily. [Voting]

The polls are now closed. Based on the proxies received and votes cast at the meeting, I declare each nominee for election as director is elected as a director of MediPharm Labs to hold office for the ensuing year or until his or her successor is elected or appointed. And I declare each of the other motions carried and resolutions passed. This concludes the formal business portion of the meeting. Unless there are any questions from the floor, may I have a motion for termination of the business portion of the meeting?

I move that the formal business portion of the meeting be terminated.

I second the motion.

I declare this meeting is terminated. We will now move on to management's closing remarks by David Pidduck, our Chief Executive Officer. Please note that David's remarks today may contain forward-looking information and forward-looking statements about MediPharm Labs. To the extent any forward-looking information contained in these remarks constitutes financial outlooks, this information may not be appropriate for any other purpose, and you should not place undue reliance on such financial outlooks. Forward-looking statements are made as of the date hereof based on the information currently available to management and on estimates and assumptions made based on factors that we believe are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expressed or implied by forward-looking statements. Now over to you, David.

Thank you, Geoff, and thank you to everyone for participating in this virtual meeting. I want to take this opportunity to share some brief remarks to update shareholders on our business between quarterly earnings. During my remarks, I will briefly update you on our focus areas, managing our cash, restructuring and evaluating our current footprint, product launches and innovation and M&A activities. MediPharm continues to maintain a strong cash position relative to many of our peers despite the headwinds and many challenges facing our business and the industry. We are tightly focused on cash, improvement with capital investments, managing inventories and pursuing all receivables. We assure that we understand the importance of rigorous cash management in all areas. A big part of preserving cash is continuing to slow the burn as we execute on our plans to get to profitability. The current industry pricing and tax regime in Canada is not conducive to raising margins. While we are hopeful that pricing may improve as the industry consolidates, pricing rebounds are not likely in 2022. While we do benefit from having almost 40% of our sales internationally, we nevertheless need to find efficiencies, and so we will be restructuring and rightsizing our cost base. We have undertaken an extensive organizational review with an aim to substantially reduce our overhead expenses in Canada and address our global manufacturing footprint. Over the next several months, we will be implementing a corporate restructuring that will see a reduction of over 30% of our salary headcount. We anticipate that savings from our restructuring efforts will start in Q4 of this year and should reduce our cash burn by about $5 million to $7 million annually. These significant moves on the cost side of our business are necessary to protect our future. While price challenges have impacted our revenues, volume has actually remained strong, and our manufacturing workforce continues to be vital to support our organic growth. With plant volumes increasing, we need our skilled workforce to continue to make our quality products and to support the launch of many new innovative products in '22 and '23, including the integration of the recently announced Shelter acquisition. Our future requires revenue growth and organic revenue growth will be driven by innovation. Sort of lost in the challenge of the last year has been MediPharm's commitment to new product launches. MediPharm was entirely a B2B business 2 years ago. In the last 18 months, we have developed a new direct-to-consumer and patient strategy to diversify our customer base. Using innovation to drive this strategy, we will launch over 50 new codes in 2022 in Canada and internationally that will drive growth in the second half of '22 and 2023. These products include unique SKUs like wellness-focused soft chews, capsules and novel cannabinoid oil. These launches will continue to solidify our goal to position ourselves as the most pharma medical of the cannabis companies. But we need to do more than just organic growth. The industry will continue to consolidate as weaker players run out of cash and exit the market. We see many potential opportunities to enhance our capabilities in both the Canadian and international markets. We expect the opportunity set to substantially expand as weaker players continue to come under pressure. M&A needs to play a part in our business transformation. When it comes to M&A, we will be opportunistic, but prudent and strategic. Since I last spoke about M&A in May on our Q1 earnings call, we have spoken to dozens of companies, consultants and stakeholders. These meetings stretch into many regions and complementary sectors around the world. In the last few weeks, we have formally engaged M&A investment advisers. We have developed goals and planned guardrails for our M&A efforts. First and foremost, opportunities must be accretive in both the short term and over the long term. We are looking at targets that could expand our global reach, better leverage our current infrastructure and build on our pharmaceutical approach. MediPharm is in a solid position to build even more capabilities in the specialty medical segments. We have no material debt, a strong cash position versus our peers, fully built out unencumbered assets and international presence, unique GMP and pharma capable facilities and a team that is hungry to grow. In summary, despite the challenging climate for cannabis industry stocks, I believe MediPharm is well positioned to weather the current storms and benefit as the industry consolidates. We have differentiated capabilities, about 40% of our revenues in growing international markets, committed core customers and an experienced dedicated team. We are proud of our company that is building to be the leading pharmaceutical company specializing in cannabis. I offer my sincere thanks to our employees, our customers and you, our shareholders, for your commitment and your continued interest in our journey. It is greatly appreciated.

Now time for Q&A by registered shareholders. [Operator Instructions] Are there any questions?

As there are no further questions, I will sign off by saying thank you for participating and reminding you that our door is always open for shareholder engagement throughout the year. We look forward to our next public call post 2022 Q2 results. Everyone, have a great day and a good long weekend.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.