Jamieson Wellness Reports Second Quarter 2020 Financial Results

- August 12th, 2020

Jamieson Wellness today reported financial results for its second quarter ended June 30, 2020.

Increases Fiscal 2020 Guidance and Declares Increased Quarterly Dividend

Jamieson Wellness Inc. (“Jamieson Wellness” or the “Company”) (TSX: JWEL) today reported financial results for its second quarter ended June 30, 2020. 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 2020 Results versus Second Quarter 2019 Results

  • Revenue increased 15.6% to $93.2 million;
  • Jamieson Brands revenue increased by 22.2%;
  • Adjusted EBITDA increased 15.8% to $19.0 million;
  • Net income was $6.0 million and adjusted net income increased 25.1% to $9.9 million; and
  • Earnings per diluted share were $0.15 and adjusted earnings per diluted share were $0.24.

“Our Purpose as an organization is to improve the world’s health and wellness, and 2020 continues to show us that now, more than ever, our people and our brands are uniquely positioned to do so. I am very proud of our entire organization for their devoted efforts supporting our customers and consumers around the world through this period of increased need,” said Mark Hornick, President and Chief Executive Officer of Jamieson Wellness. “We have implemented numerous strategies to adapt to the challenging environment, each of which has prioritized the health and safety of our employees while allowing our operations to continue without any significant interruption. I am pleased that we continue to provide value to our investors, with sustained growth in revenue and earnings. We continue to drive our growth initiatives forward, increasing our outlook for both domestic and international revenue as well as for adjusted EBITDA and adjusted net earnings, and are confident in our near and long-term growth opportunities.”

Declaration of Second Quarter Dividend

The board of directors of the Company authorized a 1.5 cent increase in the quarterly dividend and declared a cash dividend for the second quarter of 2020 of 12.5 cents per common share, or approximately $5.0 million in the aggregate. The dividend will be paid on September 15, 2020 to all common shareholders of record at the close of business on August 28, 2020. The Company has designated this dividend as an “eligible dividend” for the purposes of the Income Tax Act (Canada).

Second Quarter 2020 Results

Revenue increased 15.6% to $93.2 million in the second quarter of 2020 compared to $80.6 million in the second quarter of 2019 driven by 22.2% growth in Jamieson Brands partially offset by an anticipated 4.4% decline in Strategic Partners.

Revenue in the Jamieson Brands segment increased by 22.2% or $13.5 million to $74.3 million in the second quarter of 2020. The Company continued to see point-of-purchase sales growth ahead of its expectation as COVID-19 continues to impact consumers in Canada and within international markets. The Company’s domestic Jamieson Brands sales increased by 14.0%, or $7.3 million, reflecting the acceleration of sales due to higher demand for immunity and general health supplements. The Company’s international business generated significant growth, increasing 69.0%, or $6.2 million versus prior year, led by strong growth in multiple geographies as demand for immunity products increased significantly, particularly in China and Europe. China continues to lead international growth through increased cross border e-commerce sales and initial shipments into domestic retail stores as the distribution network is expanded.

Revenue in the Strategic Partners segment decreased 4.4%, or $0.9 million to $18.9 million in the second quarter of 2020, primarily due to the timing of new programs launched in the prior year, the availability of production capacity to meet demand and the lower volumes related to a specific customer; partially offset by the impact of a change in billing practices for a key partner.

Gross profit increased by $3.4 million in the second quarter of 2020, driven by revenue growth and segment mix. Gross profit margin decreased by 140 basis points to 35.3%. Gross profit margin in the Jamieson Brands segment decreased by 230 basis points to 41.1% due to the implementation of physical distancing initiatives and safety measures in the Company’s production facilities in response to COVID-19, offsetting operational efficiencies that normally accompany higher volumes and favorable product mix. Gross profit margin in Strategic Partners decreased by 330 basis points to 12.7%, primarily driven by customer mix, the billing change of a key customer and expenses related to the implementation of physical distancing and additional safety measures related to COVID-19.

Selling, general and administrative (“SG&A”) expenses increased by 23.9%, or $4.0 million, to $21.0 million in the second quarter of 2020. Excluding the impact of specified COVID-19 and other related costs of $3.2 million, SG&A expenses increased by $0.8 million due to higher variable compensation expenses partially offset by timing of marketing activity and a reduction in travel, meals, and entertainment costs as a result of COVID-19.

Earnings from operations decreased 10.6% to $10.7 million in the second quarter of 2020 and operating margin decreased by 330 basis points to 11.5% as a result of higher revenue and gross profit offset by higher SG&A and share-based compensation expenses. On an adjusted basis, earnings from operations increased 13.5% to $14.8 million in the second quarter of 2020 and operating margin was 15.9%, or relatively consistent with the prior year period.

Adjusted EBITDA increased 15.8% to $19.0 million in the second quarter of 2020 from $16.4 million in the second quarter of 2019 and adjusted EBITDA margin was 20.4% compared to 20.3% in the prior year period.

Interest expense and other financing costs decreased by $1.1 million to $1.4 million in the second quarter of 2020 mainly due to lower average borrowings in the quarter and lower interest rates.

Net income for the second quarter of 2020 was $6.0 million compared to $8.2 million in the second quarter of 2019. Adjusted net income, which excludes all non-operating expenses and foreign exchange gains or losses, increased to $9.9 million in the second quarter of 2020 from $7.9 million in the second quarter of 2019.

Adjusted net income for the second quarter of 2020 excludes costs associated with share-based compensation, foreign exchange loss, business integration, COVID-19 related costs, other non-recurring expenses and related tax effects. 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”.

Balance Sheet & Cash Flow

The Company generated $14.4 million in cash from operations during the second quarter of 2020 compared to cash generated of $6.6 million in the prior year. Cash from operating activities before working capital considerations of $9.9 million was lower by $2.1 million primarily reflecting higher COVID-19 related costs partially offset by higher volumes in the current quarter. Improvements in cash from working capital was mainly driven by favourable timing on the collection of receivables and timing of payments, partially offset by an increase in inventories to secure immunity related raw materials to ensure continuity of supply.

The Company’s cash at June 30, 2020 was $6.8 million compared to $0.2 million on December 31, 2019. The Company ended the quarter with $118.0 million in cash and available operating lines and total debt of $163.8 million. On May 21, 2020, the Company declared a quarterly dividend of $0.11 per common share to holders of record as of May 29, 2020 and paid such dividend on June 12, 2020. The dividend payment was approximately $4.4 million in the aggregate.

Three months ended        
June 30        
($ in 000’s, except as otherwise noted) 2020   2019   $ Change   % Change
Cash, beginning of period 5,227   3,314   1,913   57.7 %
Cash flows from (used in):
Operating activities 14,422   6,601   7,821   118.5 %
Investing activities (4,740 ) (2,362 ) (2,378 ) (100.7 %)
Financing activities (8,113 ) (2,285 ) (5,828 ) (255.1 %)
Cash, end of period 6,796   5,268   1,528   29.0 %

Fiscal 2020 Outlook

The Company is increasing its outlook for fiscal 2020 and anticipates revenue in a range of $385.0 to $395.0 million, compared to $364.0 to $376.0 million previously, which represents annual growth of 11.5% to 14.5%. The Company anticipates adjusted EBITDA in a range of $84.0 to $88.0 million, up from $80.0 to $84.0 million previously, and now anticipates adjusted diluted earnings per share in a range of $1.08 to $1.15 compared to $1.02 to $1.10 previously. The increase in the Company’s outlook reflects strong consumer demand both domestically and internationally.

This outlook reflects the following assumptions:

  • Jamieson Brands segment growth of 14% to 17%, including:
    • 10% to 12% domestic growth, and
    • 40% to 50% international growth
  • Strategic Partners segment growth of approximately 5%
  • Normalized SG&A expense increases of 8% to 10% to invest in marketing to drive international growth and additional resources to support e-commerce initiatives
  • A forecasted annual CAD/USD average exchange rate of $1.35
  • Interest expense of between $6.0 million and $6.5 million
  • Effective income tax rate of approximately 28.0%
  • A fully diluted share count of approximately 41 million shares

Considering the outbreak of COVID-19 and physical distancing measures taken around the world, there exists the risk of a second wave and further escalation in measures required to control the outbreak including prolonged retail and manufacturing closures that could impact our estimates for 2020.

While physical distancing in Canada has significantly impacted certain industries, the Company’s industry and supply chain are considered essential. The Company has not seen significant retail closures, outside of supplement only stores considered non-essential, and our products remain widely available in food, drug, mass and e-commerce channels. Consumer response to COVID-19 has resulted in the acceleration of demand for both immunity and general health supplements. Higher demand will be slightly constrained while the Company experiences a temporary increase in absenteeism and manages the impact of physical distancing measures in its facilities. In support of its employees, the Company has increased sanitation, maximized physical distancing and, where possible, established shift gaps to avoid congestion during shift changeovers. The Company has adapted rapidly to the changing environment to minimize the risk of business interruption due to COVID-19 while ensuring a steady supply of products to its consumers. The extent of 2020 gross profit margin pressures will be a function of the depth and duration of recommended physical distancing policies in the weeks and months to come.

For additional details on the Company’s fiscal 2020 outlook, including guidance for the second quarter of 2020, refer to the “Outlook” section in the management’s discussion and analysis of financial condition and results of operations (“MD&A”) for the three months ended June 30, 2020.

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, 2020 and related 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 2020 results at 5:00 p.m. ET today, August 12, 2020. The call can be accessed live over the telephone by dialing 1- 800-437-2398 from Canada and the U.S. or 1- 323-289-6576 from international locations. Due to increased volumes of conference calls this quarter, please dial the conference call number 15 minutes prior to the start time. 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 9865727 and it will be available until Wednesday, August 26, 2020.

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=140793. 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 Smart Solutions by Lorna Vanderhaeghe, the #1 women’s natural health focused brand in Canada. For more information please visit jamiesonwellness.com.

Jamieson Wellness’ head office is located at 1 Adelaide Street East Suite 2200, 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 results and its outlook for its 2020 revenue, adjusted EBITDA and adjusted diluted earnings per share. Words such as “expect,”, “anticipate”, “intend,”, “may,”, “will”, “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 27, 2020 and under the “Risk Factors” section in the Company’s MD&A filed today, August 12, 2020. 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.

The Company cautions 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.

Jamieson Wellness Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

In thousands of Canadian dollars, except share and per share amounts

Three months ended Six months ended
June 30 June 30
2020   2019   2020   2019  
Revenue 93,204   80,592   177,727   153,170  
Cost of sales 60,263   51,013   113,530   96,391  
Gross profit 32,941   29,579   64,197   56,779  
Gross profit margin 35.3 % 36.7 % 36.1 % 37.1 %
Selling, general and administrative expenses 20,993   16,949   38,625   33,438  
Share-based compensation 1,273   690   2,538   1,490  
Earnings from operations 10,675   11,940   23,034   21,851  
Operating margin 11.5 % 14.8 % 13.0 % 14.3 %
Foreign exchange loss (gain) 848   (195 ) 99   (169 )
Other expenses   6     3  
Interest expense and other financing costs 1,390   2,463   3,318   4,885  
Income before income taxes 8,437   9,666   19,617   17,132  
Provision for income taxes 2,399   1,480   5,568   3,562  
Net income 6,038   8,186   14,049   13,570  
Adjusted net income 9,882   7,897   17,681   14,368  
EBITDA 12,715   15,007   28,680   27,470  
Adjusted EBITDA 18,983   16,392   35,669   30,875  
Adjusted EBITDA margin 20.4 % 20.3 % 20.1 % 20.2 %
Weighted average number of shares
Basic 39,447,020   38,321,699   39,273,066   38,313,840  
Diluted 41,178,625   39,741,550   41,003,141   39,732,220  
Earnings per share attributable to common shareholders:
Basic, earnings per share 0.15   0.21   0.36   0.35  
Diluted, earnings per share 0.15   0.21   0.34   0.34  
Adjusted Diluted, earnings per share 0.24   0.20   0.43   0.36  
Jamieson Wellness Inc.

Consolidated Statements of Financial Position

In thousands of Canadian dollars

June 30,
2020
December 31,
2019
Assets
Current assets
Cash 6,796 198  
Accounts receivable 74,945 89,394  
Inventories 104,287 81,948  
Derivatives 2,022  
Prepaid expenses and other current assets 2,279 1,893  
190,329 173,433  
Non-current assets
Property, plant and equipment 68,540 64,906  
Goodwill 122,975 122,975  
Intangible assets 197,752 198,189  
Deferred income tax 2,262 2,272  
Total assets 581,858 561,775  
Liabilities
Current liabilities
Accounts payable and accrued liabilities 71,924 67,795  
Income taxes payable 1,156 2,365  
Derivatives 1,026 1,292  
Current portion of other long-term liabilities 1,914 1,890  
76,020 73,342  
Long-term liabilities
Long-term debt 163,754 164,769  
Post-retirement benefits 4,123 3,923  
Deferred income tax 51,906 51,107  
Other long-term liabilities 10,381 9,466  
Total liabilities 306,184 302,607  
Shareholders’ equity
Share capital 252,076 243,224  
Contributed surplus 11,348 10,727  
Deficit 11,432 6,061  
Accumulated other comprehensive income (loss) 818 (844 )
Total shareholders’ equity 275,674 259,168  
Total liabilities and shareholders’ equity 581,858 561,775  
Jamieson Wellness Inc.

Segment Information

In thousands of Canadian dollars, except as otherwise noted

Jamieson Brands
Three months ended
June 30
2020 2019 $ Change % Change
Revenue 74,292   60,816   13,476   22.2 %
 
Gross profit 30,531   26,414   4,117   15.6 %
Gross profit margin 41.1 % 43.4 %   (2.3 %)
Selling, general and administrative expenses 16,885   15,265   1,620   10.6 %
Share-based compensation 1,273   690   583   84.5 %
Earnings from operations 12,373   10,459   1,914   18.3 %
Operating margin 16.7 % 17.2 %   (0.5 %)
Adjusted EBITDA 17,624   14,419   3,205   22.2 %
Adjusted EBITDA margin 23.7 % 23.7 %    
Strategic Partners
Three months ended
June 30
2020 2019 $ Change % Change
Revenue 18,912   19,776   (864 ) (4.4 %)
Gross profit 2,410   3,165   (755 ) (23.9 %)
Gross profit margin 12.7 % 16.0 %   (3.3 %)
Selling, general and administrative expenses 4,108   1,684   2,424   143.9 %
Earnings from operations (1,698 ) 1,481   (3,179 ) (214.7 %)
Operating margin (9.0 %) 7.5 %   (16.5 %)
Adjusted EBITDA 1,359   1,973   (614 ) (31.1 %)
Adjusted EBITDA margin 7.2 % 10.0 %   (2.8 %)
Jamieson Brands
Six months ended
June 30
2020 2019 $ Change % Change
Revenue 144,086   116,857   27,229   23.3 %
Gross profit 59,806   50,125   9,681   19.3 %
Gross profit margin 41.5 % 42.9 %   (1.4 %)
Selling, general and administrative expenses 32,941   30,180   2,761   9.1 %
Share-based compensation 2,538   1,490   1,048   70.3 %
Earnings from operations 24,327   18,455   5,872   31.8 %
Operating margin 16.9 % 15.8 %   1.1 %
Adjusted EBITDA 33,411   26,498   6,913   26.1 %
Adjusted EBITDA margin 23.2 % 22.7 %   0.5 %
Strategic Partners
Six months ended
June 30
2020 2019 $ Change % Change
Revenue 33,641   36,313   (2,672 ) (7.4 %)
Gross profit 4,391   6,654   (2,263 ) (34.0 %)
Gross profit margin 13.1 % 18.3 %   (5.2 %)
Selling, general and administrative expenses 5,684   3,258   2,426   74.5 %
Earnings from operations (1,293 ) 3,396   (4,689 ) (138.1 %)
Operating margin (3.8 %) 9.4 %   (13.2 %)
Adjusted EBITDA 2,258   4,377   (2,119 ) (48.4 %)
Adjusted EBITDA margin 6.7 % 12.1 %   (5.4 %)

Non-IFRS Financial Measures

This press release makes reference to certain non-IFRS 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 the Company’s MD&A.

Reconciliation of Adjusted Net Income

In thousands of Canadian dollars

Three months ended Six months ended
June 30 June 30
2020 2019 2020 2019
Net income 6,038   8,186   14,049   13,570  
Adjustments to net income:
Share-based compensation 144   190   288   380  
Foreign exchange loss (gain) 848   (195 ) 99   (169 )
Termination benefits and related costs       480  
International market expansion   434   13   936  
Business integration 254   262   420   396  
COVID-19 related costs 3,932     4,017    
Other   252     330  
Revaluation of deferred tax liability   (1,032 )   (1,032 )
Related tax effects (1,334 ) (200 ) (1,205 ) (523 )
Adjusted net income 9,882   7,897   17,681   14,368  
Reconciliation of EBITDA and Adjusted EBITDA

In thousands of Canadian dollars

Three months ended Six months ended
June 30 June 30
2020 2019 2020 2019
Net income 6,038 8,186   14,049 13,570  
Add:
Provision for income taxes 2,399 1,480   5,568 3,562  
Interest expense and other financing costs 1,390 2,463   3,318 4,885  
Depreciation of property, plant, and equipment 1,932 1,981   3,853 3,641  
Amortization of intangible assets 956 897   1,892 1,812  
Earnings before interest, taxes, depreciation, and amortization (EBITDA) 12,715 15,007   28,680 27,470  
Add EBITDA adjustments:
Share-based compensation 1,273 690   2,538 1,490  
Foreign exchange loss (gain) 848 (195 ) 99 (169 )
Termination benefits and related costs   480  
International market expansion 434   13 936  
Business integration 215 204   322 338  
COVID-19 related costs 3,932   4,017  
Other 252   330  
Adjusted EBITDA 18,983 16,392   35,669 30,875  

Investor and Media Contact Information:

Jamieson Wellness
Ruth Winker
416-960-0052
rwinker@jamiesonlabs.com

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