Jamieson Wellness Inc. Reports Second Quarter 2018 Financial Results, Reiterates 2018 Guidance and Increases Quarterly Dividend

TORONTO--(BUSINESS WIRE)--Jamieson Wellness Inc. (“Jamieson Wellness” or the “Company”) (TSX: JWEL) today reported financial results for its second quarter ended June 30, 2018 and announced that the Company’s board of directors has authorized a 12.5% increase in the quarterly dividend. All amounts are expressed in Canadian dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures. See “Non-IFRS Financial Measures” below.

Highlights of Second Quarter 2018 Results versus Second Quarter 2017 Results

• Revenue increased 8.2% to $77.1 million, driven by 79.2% growth of international revenue and 26.6% growth in Strategic Partner revenue;
• Adjusted EBITDA was $14.2 million compared to prior year of $15.1 million;
• Net Income was $4.8 million, Adjusted Net Income was $6.9 million compared to prior year of $7.9 million;
• Earnings per diluted share were $0.12 and adjusted earnings per diluted share were $0.17;
• Increases quarterly dividend by 12.5%

“Second quarter consolidated revenue growth remained strong, as international branded sales growth accelerated and we generated robust growth of Strategic Partners revenue. This strength offset an unfavorable timing related impact on domestic branded revenue, where consumer purchases have outpaced shipments year to date,” said Mark Hornick, President and Chief Executive Officer of Jamieson Wellness. “While the mix impact of proportionally higher Strategic Partner sales combined with lower domestic Branded volumes led to lower reported Gross Profit and adjusted EBITDA margins specific to the quarter, we are comfortable with our margin outlook for fiscal 2018. In addition, we are reiterating our 2018 adjusted EBITDA and earnings per share guidance and are increasing our 2018 revenue outlook to reflect the strong international sales trends and market opportunities.”

Declaration of Second Quarter Dividend and Quarterly Dividend Increase

On August 8, 2018, the board of directors authorized a $0.01 increase in the quarterly dividend and declared a cash dividend for the second quarter of 2018 of $0.09 per common share, or approximately $3.4 million in the aggregate. The dividend will be paid on September 14, 2018 to all common shareholders of record at the close of business on August 31, 2018. The Company has designated this dividend as an “eligible dividend” for the purposes of the Income Tax Act (Canada).

“We are pleased to announce our first quarterly dividend increase,” continued Mr. Hornick. “The increase reflects not only our strong cash generation, but our confidence in our underlying business performance.”

Second Quarter 2018 Results

Revenue increased 8.2% to $77.1 million in the second quarter of 2018 from $71.3 million in the second quarter of 2017 and was driven by a 3.5% increase in Jamieson Brands revenue, and a 26.6% increase in Strategic Partners revenue. The increase in the Jamieson Brands revenue was driven primarily by international growth, partially offset by lower domestic Branded volumes as consumer purchases have outpaced shipments which has led to a decline in retailer inventories, along with the impact of continued integration of the Company’s Health Food businesses. The increase in Strategic Partners revenue was the result of activity originally planned for the first quarter and expanded activity from existing strategic partners.

Gross profit increased 4.0% to $26.3 million in the second quarter of 2018 from $25.3 million in the second quarter of 2017 and gross profit margin decreased 130 basis points to 34.2% from 35.5% in the same respective period. The increase in gross profit is due to revenue growth from both segments, while the decrease in gross profit margin is primarily due to a higher proportion of Strategic Partner revenue as compared to the prior year period. In addition, margins were lower as the prior year period Strategic Partner gross profit benefitted from favorable pricing and margins related to certain products.

Selling, general and administrative expenses (“SG&A”) increased 19.9% to $15.8 million in the second quarter of 2018 from $13.2 million in the second quarter of 2017. The increase reflected the inclusion of $0.6 million of public company costs, $0.5 million increase in marketing to support the launch of our Jamieson Essentials plus Protein, and $1.4 million in non-recurring costs associated with the health food business integration, professional fees and international market expansion. Normalizing for the impact of non-recurring costs, SG&A as a percentage of revenue is consistent with the second quarter of 2017 at 18.6% notwithstanding planned SG&A increases in the current year related to public company costs.

Operating income decreased 4.9% to $10.2 million in the second quarter of 2018 from $10.7 million in the second quarter of 2017 and operating margin decreased 180 basis points to 13.2% from 15.0% in the same respective periods.

Interest expense and other financing costs were $2.2 million in the second quarter of 2018 compared to a benefit of $8.1 million in the second quarter of 2017. The change was driven by lower borrowings in the second quarter of 2018, offset by the discharge of the note payable to Jamieson Finco LP in the pre-IPO reorganization in the second quarter of 2017, which led to interest forgiveness of $11.0 million in the prior year period.

Net income for the second quarter of 2018 was $4.8 million compared to a net loss of $7.0 million in the second quarter of 2017. Adjusted Net Income, which excludes all non-operating expenses, decreased to $6.9 million in the second quarter of 2018 from $7.9 million in the second quarter of 2017.

Adjusted Net Income for the second quarter of 2018 excludes share based compensation, foreign exchange losses, costs associated with termination benefits and related costs, non-recurring business integration costs, international market expansion costs, other non-recurring expenses, as well as the related tax effects of each item. Adjusted Net Income for the second quarter of 2017 excludes costs associated with share based compensation, amortization of fair value adjustments, foreign exchange loss, acquisition costs, purchase consideration accounted for as compensation expense, public offering costs, preferred share accretion, a benefit of net interest forgiveness, and other non-recurring expenses, as well as the related tax effects on each item. A detailed reconciliation of reported net income to non-IFRS Adjusted Net Income is included in the tables accompanying this release under the heading “Non-IFRS Financial Measures”.

Adjusted EBITDA decreased 6.1% to $14.2 million in the second quarter of 2018 from $15.1 million in the second quarter of 2017 and Adjusted EBITDA as a percentage of revenue was 18.4% compared to 21.2% in the prior year period.

Balance Sheet & Cash Flow

The Company generated $8.5 million of cash from operations during the second quarter of 2018 compared to $3.1 million of cash from operations during the second quarter of 2017. The increase reflects change in cash used in working capital, partially offset by cash generated in operating activities before working capital. The Company’s cash at June 30, 2018 was $7.5 million compared to $10.8 million on June 30, 2017. On May 22, 2018, the Company declared a quarterly dividend of $0.08 per common share to holders of record as of June 1, 2018 and paid such dividend on June 15, 2018. The dividend payment was approximately $3.0 million in the aggregate.

	Three months ended
	June 30
($ in 000's)	2018		2017		$ Change			% Change
Cash, beginning of period	2,373		8,395			(6,022	)	(71.7	%)
Cash flows from (used in):
Operating activities	8,547		3,065			5,482		178.9	%
Investing activities	(2,468	)	(701	)		(1,767	)	(252.1	%)
Financing activities	(982	)	-			(982	)	100.0	%
Cash, end of period	7,470		10,759			(3,289	)	(30.6	%)

Outlook

The Company is updating its outlook for fiscal 2018, which was initially provided when the Company reported fourth quarter and full year 2017 results on February 22, 2018. The Company anticipates generating revenue in a range of $330.0 to $340.0, which is increased from the prior range of $325.0 to $335.0 million. The Company continues to anticipate Adjusted EBITDA in a range of $67.0 to $69.0 million and adjusted diluted earnings per share in a range of $0.83 to $0.87, as the increased margin related to revenue guidance is re-invested in fixed costs to expand the Company’s international market opportunity and e-commerce infrastructure. This outlook is based, in part, on a forecasted CAD/USD exchange rate of $1.30 and a fully diluted share count of approximately 39.8 million shares.

Consolidated Financial Statements and Management’s Discussion and Analysis

The Company’s unaudited condensed consolidated interim financial statements and accompanying notes as at and for the three months ended June 30, 2018 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are available under the Company’s profile on SEDAR at www.sedar.com and on the Investor Relations section of the Company’s website at https://investors.jamiesonwellness.com.

Conference Call

Management will host a conference call to discuss the Company’s second quarter 2018 results at 5:00 p.m. ET on Wednesday, August 8, 2018. The call can be accessed live over the telephone by dialing 1-877-425-9470 from Canada and the U.S. or 1-201-389-0878 from international locations. A replay will be available shortly after the call and can be accessed by dialing 1-844-512-2921 from Canada and the U.S. or 1-412-317-6671 from international locations. The passcode for the replay is 13681626 and it will be available until Wednesday, August 22, 2018.

Interested parties may listen to a simultaneous webcast of the conference call by logging on via the Investor Relations section of the Company’s website at https://investors.jamiesonwellness.com or directly at http://public.viavid.com/index.php?id=130505. A replay of the webcast will be available for approximately 30 days following the call.

About Jamieson Wellness

Jamieson Wellness is dedicated to improving the world’s health and wellness with its portfolio of innovative natural health brands. Established in 1922, Jamieson is the Company’s heritage brand and Canada’s #1 consumer health brand. Jamieson Wellness manufactures and markets sports nutrition products and specialty supplements under its Progressive, Precision and Iron Vegan brands. The Company also markets products by Lorna Vanderhaeghe Health Solutions (LVHS), the #1 women’s natural health focused brand in Canada. For more information please visit jamiesonwellness.com.

Jamieson Wellness’ head office is located at 2 St. Clair Avenue West, Toronto, Ontario, Canada.

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation. Such information includes, but is not limited to, statements related to the Company’s anticipated growth opportunities and its outlook for its 2018 revenue and Adjusted EBITDA. Words such as “expect,” “anticipate,” “intend,” “attempt,” “may,” “plan,” “will”, “can”, “believe,” “seek,” “estimate,” and variations of such words and similar expressions are intended to identify such forward-looking information. This information reflects the Company’s current expectations regarding future events. Forward-looking information is based on a number of assumptions and is 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 information. Such risks and uncertainties include, but are not limited to, the factors discussed under “Risk Factors” in the Company’s Annual Information Form dated March 29, 2018. This information is based on the Company’s reasonable assumptions and beliefs in light of the information currently available to it and the statements are made as of the date of this press release. The Company does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law or regulatory authority.

We caution that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect the Company’s results. Readers are urged to consider the risks, uncertainties and assumptions associated with these statements carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. See “Forward-looking Information” and “Risk Factors” within the Company’s MD&A for a discussion of the uncertainties, risks and assumptions associated with these statements.

Source: Jamieson Wellness Inc.

Jamieson Wellness Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
In thousands of Canadian dollars, except per share data
	Three months ended		Six months ended
	June 30		June 30
	2018	2017	2018	2017
Revenue	77,109	71,255	147,213	136,156
Cost of sales	50,776	45,935	95,510	88,627
Gross profit	26,333	25,320	51,703	47,529
Gross profit margin	34.2%	35.5%	35.1%	34.9%
Selling, general and administrative expenses	15,806	13,183	30,623	26,624
Share-based compensation	355	1,438	782	2,184
Earnings from operations	10,172	10,699	20,298	18,721
Operating margin	13.2%	15.0%	13.8%	13.7%
Foreign exchange loss	192	186	392	418
Termination benefits and related costs	1,046	-	2,778	2,499
Public offering costs	-	6,653	-	6,884
Acquisition costs	-	446	-	2,303
Other expenses	159	2,221	147	3,924
Preferred share accretion	-	13,411	-	28,796
Interest expense (income) and other financing costs	2,185	(8,084)	4,361	228
Income (loss) before income taxes	6,590	(4,134)	12,620	(26,331)
Provision for income taxes	1,802	2,824	3,206	2,278
Net income (loss)	4,788	(6,958)	9,414	(28,609)
Adjusted net income	6,903	7,870	12,663	10,040
EBITDA	10,967	3,255	21,306	6,860
Adjusted EBITDA	14,153	15,071	26,839	26,495
Adjusted EBITDA margin	18.4%	21.2%	18.2%	19.5%
Weighted average number of shares
Basic	37,954,280	520,253	37,893,060	520,253
Diluted	39,782,841	520,253	39,721,571	520,253
Adjusted Diluted	39,782,841	39,782,841	39,782,841	39,782,841
Earnings per share attributable to common shareholders:
Basic, earnings (loss) per share	0.13	(13.37)	0.25	(54.99)
Diluted, earnings (loss) per share	0.12	(13.37)	0.24	(54.99)
Adjusted Diluted, earnings per share	0.17	0.20	0.32	0.25

Jamieson Wellness Inc.
Condensed Consolidated Statements of Financial Position
In thousands of Canadian dollars
	June 30, 2018		December 31, 2017
Assets
Current assets
Cash	7,470		4,833
Accounts receivable	60,380		71,996
Inventories	71,285		59,080
Derivatives	2,357		-
Prepaid expenses and other current assets	2,196		1,507
	143,688		137,416
Non-current assets
Property, plant and equipment	47,797		45,173
Goodwill	122,975		122,975
Intangible assets	202,664		204,264
Deferred income tax	2,539		2,727
Total assets	519,663		512,555
Liabilities
Current liabilities
Accounts payable and accrued liabilities	65,920		66,621
Income taxes payable	422		4,267
Derivatives	-		1,081
Current portion of long-term debt	12,188		9,750
	78,530		81,719
Long-term liabilities
Long-term debt	160,871		153,459
Post-retirement benefits	5,145		4,856
Deferred income tax	50,835		51,697
Total liabilities	295,381		291,731
Shareholders' equity
Share capital	237,564		234,908
Contributed surplus	7,292		7,437
Deficit	(21,065	)	(19,486	)
Accumulated other comprehensive income (loss)	491		(2,035	)
Total shareholders' equity	224,282		220,824
Total liabilities and shareholders' equity	519,663		512,555

Jamieson Wellness Inc.
Segment Information
In thousands of Canadian dollars
Jamieson Brands
		Three months ended June 30
		2018		2017		$ Change			% Change
	Revenue	58,617		56,647			1,970		3.5	%
	Gross profit	23,408		21,806			1,602		7.3	%
	Gross profit margin	39.9	%	38.5	%		-		1.4	%
	Selling, general and administrative expenses	14,061		11,766			2,295		19.5	%
	Share-based compensation	355		1,438			(1,083	)	(75.3	%)
	Earnings from operations	8,992		8,602			390		4.5	%
	Operating margin	15.3	%	15.2	%		-		0.1	%
	Adjusted EBITDA	12,434		12,663			(229	)	(1.8	%)
	Adjusted EBITDA margin	21.2	%	22.4	%		-		(1.2	%)
Strategic Partners
		Three months ended June 30
		2018		2017		$ Change			% Change
	Revenue	18,492		14,608			3,884		26.6	%
	Gross profit	2,925		3,514			(589	)	(16.8	%)
	Gross profit margin	15.8	%	24.1	%		-		(8.3	%)
	Selling, general and administrative expenses	1,745		1,417			328		23.1	%
	Earnings from operations	1,180		2,097			(917	)	(43.7	%)
	Operating margin	6.4	%	14.4	%		-		(8.0	%)
	Adjusted EBITDA	1,719		2,408			(689	)	(28.6	%)
	Adjusted EBITDA margin	9.3	%	16.5	%		-		(7.2	%)

Jamieson Wellness Inc.
Segment Information
In thousands of Canadian dollars
Jamieson Brands
		Six months ended June 30
		2018		2017		$ Change			% Change
	Revenue	118,511		109,567			8,944		8.2	%
	Gross profit	46,216		41,189			5,027		12.2	%
	Gross profit margin	39.0	%	37.6	%		-		1.4	%
	Selling, general and administrative expenses	27,306		23,770			3,536		14.9	%
	Share-based compensation	782		2,184			(1,402	)	(64.2	%)
	Earnings from operations	18,128		15,235			2,893		19.0	%
	Operating margin	15.3	%	13.9	%		-		1.4	%
	Adjusted EBITDA	23,786		22,369			1,417		6.3	%
	Adjusted EBITDA margin	20.1	%	20.4	%		-		(0.3	%)
Strategic Partners
		Six months ended June 30
		2018		2017		$ Change			% Change
	Revenue	28,702		26,589			2,113		7.9	%
	Gross profit	5,487		6,340			(853	)	(13.5	%)
	Gross profit margin	19.1	%	23.8	%		-		(4.7	%)
	Selling, general and administrative expenses	3,317		2,854			463		16.2	%
	Earnings from operations	2,170		3,486			(1,316	)	(37.8	%)
	Operating margin	7.6	%	13.1	%		-		(5.5	%)
	Adjusted EBITDA	3,053		4,126			(1,073	)	(26.0	%)
	Adjusted EBITDA margin	10.6	%	15.5	%		-		(4.9	%)

Non-IFRS Financial Measures

This press release makes reference to certain non-IFRS financial measures. Management uses these non-IFRS financial measures for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of ongoing operations and in analyzing the Company’s business performance and trends. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under IFRS. We use non-IFRS measures, including “gross profit”, “gross profit margin”, “operating margin” “EBITDA”, “Adjusted EBITDA”, “Adjusted EBITDA margin”, “Adjusted Net Income” and “Adjusted Diluted Earnings per Share” to provide supplemental measures of the Company’s operating performance and thus highlight trends in the Company’s core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also uses non-IFRS measures in order to prepare annual operating budgets and to determine components of management compensation. Definitions of non-IFRS measures can be found in our MD&A.

Reconciliation of Adjusted Net Income
In thousands of Canadian dollars
	Three months ended				Six months ended
($ in 000's)	June 30				June 30
	2018		2017		2018		2017
Net income (loss)	4,788		(6,958	)	9,414		(28,609	)
Adjustments to net income (loss):
Share-based compensation	38		1,044		38		1,485
Amortization of fair value adjustments	-		847		-		1,412
Amortization of deferred financing fee	-		-		-		3,078
Foreign exchange loss	192		186		392		418
Termination benefits and related costs	1,046		-		2,778		2,499
Acquisition costs	-		446		-		2,303
Purchase consideration accounted for as compensation expense	-		2,215		(1,066	)	3,691
Public offering costs	-		6,653		-		6,884
Net interest forgiveness	-		(11,001	)	-		(11,001	)
Preferred share accretion	-		13,411		-		28,796
International market expansion	137		-		137		-
Non-recurring business integration	1,125		-		2,086		-
Other	331		31		424		244
Related tax effects	(754	)	996		(1,540	)	(1,160	)
Adjusted net income	6,903		7,870		12,663		10,040

Reconciliation of EBITDA and Adjusted EBITDA
In thousands of Canadian dollars
	Three months ended			Six months ended
	June 30			June 30
	2018	2017		2018		2017
Net income (loss)	4,788	(6,958	)	9,414		(28,609	)
Add:
Provision for income taxes	1,802	2,824		3,206		2,278
Interest expense (income) and other financing costs	2,185	(8,084	)	4,361		228
Preferred share accretion	-	13,411		-		28,796
Depreciation of property, plant, and equipment	1,315	1,216		2,578		2,487
Amortization of intangible assets	877	846		1,747		1,680
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	10,967	3,255		21,306		6,860
Add EBITDA adjustments:
Share-based compensation	355	1,438		782		2,184
Amortization of fair value adjustments	-	847		-		1,412
Foreign exchange loss	192	186		392		418
Termination benefits and related costs	1,046	-		2,778		2,499
Acquisition costs	-	446		-		2,303
Purchase consideration accounted for as compensation expense	-	2,215		(1,066	)	3,691
Public offering costs	-	6,653		-		6,884
International market expansion	137	-		137		-
Non-recurring business integration	1,125	-		2,086		-
Other	331	31		424		244
Adjusted EBITDA	14,153	15,071		26,839		26,495