Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss the financial results for the fourth quarter and full year of 2022. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. Please be advised that the reproduction of this call in whole or in part is not permitted without written authorization of the company. As a reminder, today's call is being recorded. On the call today from management are Mike Pilato, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Pilato, please note that a press release covering the company's fourth quarter and full year 2022 financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section on the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in Jamieson's press release issued this afternoon and in filings with the Canadian securities administrators for a more detailed discussion of the factors that could cause actual results to differ materially from those projections in any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as it may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included with the company's press release issued earlier today. 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 call over to Mr. Pilato to get started. Please go ahead, sir.

[Michael Pilato, executive]

Thank you, Cynthia, and good afternoon, everyone. Thanks for taking the time to join us today to discuss our latest results. I'll begin with some high-level comments about the year and quarter, then provide deeper context around our key strategic areas of focus for 2023 and beyond. Chris will then follow up with a more detailed view of the financials, and then we'll open it up for questions. 2022 is a transformative year for Jamieson Wellness as we celebrated our 100th year in addition to announcing major strategic actions that set us up to significantly advance our category leadership globally in the future. Throughout 2022, we saw consistent growth in our brands in Canada as our elevated base of Canadian consumers continue to trust Jamieson for their health and wellness needs. In July, we closed on our acquisition of the Youtheory brand, providing us with a strong platform and premium brand offering in the United States. And in November, we announced the pending acquisition of our Chinese distributors assets, which will help us get closer to the consumer and take control of the full value chain in the world's second largest vitamin mineral supplement market. In the fourth quarter, our results continued to be driven by the strength of our branded business and total revenue was up nearly 49% versus prior year period to $193 million. Jamieson Brands segment revenue increased 56% overall, including 6% growth in Canada, driven by strong consumer demand and higher retailer orders for the cold and flu season. In the U.S., our Youtheory brand contributed nearly $51 million to the top line as higher promotional activity was partially offset by moderating retailer inventory levels as the key customer adjusted stock levels in advance of an upcoming product improvement launch we are looking forward to bringing to market in 2023. In China, we saw further acceleration as the lifting of Zero Covid policies resulted in strong consumer demand for immunity products and led to a nearly 42% increase in sales. In other international markets, revenue was down year-over-year largely due to geopolitical and economic pressures in Eastern Europe and delayed entry into certain markets as a result of regulatory changes. Finally, in our Strategic Partners business, revenue was up over 22% due to pricing and timing of customer orders through the year. Adjusted EBITDA in the fourth quarter of 2022 was up 45% to $48.9 million as our higher revenue was partially offset by increased marketing for our international business and the inclusion of Youtheory, which has a slightly lower EBITDA margin profile than our base businessNext, I want to provide some commentary on our key strategic growth initiatives, including context for how you should view these going forward. As a reminder, we have 4 primary pillars that comprise our growth agenda. Number 1, Canada, 2, the United States; 3 China and 4, International, which refers to approximately 45 other countries and regions in which we have branded product distribution outside of the U.S. and China. Beginning with Canada, our core domestic markets. The key elements of our approach will remain largely consistent. We will continue to leverage our category leadership position through product innovation, marketing and increased distribution to ensure we are everywhere our consumers want us to be with the products they want and need for their health and wellness. Collectively, we expect our domestic initiatives to consistently produce annualized growth in the mid-single-digit range. In the U.S., growth will be driven by the Youtheory brand we acquired in Q3 last year. Integration continues to progress well with no major deviations from our expectations relative to long-term potential. We see multiple pathways to grow revenue and improve profitability at Youtheory. On the top line, we are focused on leveraging innovation and channel expansion opportunities across e-commerce and traditional brick-and-mortar retailers. On an annualized basis, our U.S. business is expected to deliver consistent double-digit growth. In addition, as we continue to integrate this business and align operational practices with our existing business, we expect the margin profile to improve. In China, as we move from a distributor go-to-market model to full ownership, we'll now control the entire value chain, opening up significant potential for future expansion in the second largest vitamin mineral supplement market in the world. We built a strong foundation in the country over the past 5 years and will now accelerate brand investments to drive growth and unlock new opportunities by engaging directly with Chinese consumers. One of these investments is our new partnership with DCP Capital, which we announced concurrently with our results today. DCP is a leading international private equity firm with a track record of success in Greater China and broader Asian markets. We will work with the DCP team to leverage its deep local knowledge and network, exceptional track record of growing leading consumer and health brands and proven operational capabilities to further strengthen our organic growth. DCP has noted that Jamieson's 100-year history, product quality and reputation as a trusted brand has made it a sought-after brand in the country, and they believe strongly in our potential for growth. As part of the partnership, DCP is taking on a minority ownership position in our business in China in addition to making an investment in the overall business of Jamieson Wellness, details of which Chris will discuss a bit later.This is an exciting step in our long-term growth plan for China as we expected to consistently produce the highest average growth rates relative to other geographic segments, and we are all looking forward to working with DCP to achieve this accelerated growth in this key market. Finally, in our other international markets, our playbook will remain relatively consistent. We will continue to invest in marketing and innovation and leverage our strong distributor partnerships across over 45 countries and regions in existing key markets. We'll also continue to monitor the landscape for expansion potential in new markets around the world. In summary, major strategic actions defined our centennial year and have placed us in a strong position for accelerated growth as we enter another century of helping consumers around the world improve their health and wellness. The new dimensions we've added to our model, including a major platform in the U.S. and a much more forward-leaning go approach in China has transformed our business. As we enter this next stage of growth, we will continue to be focused on delivering profitable growth and driving value for all stakeholders. I also want to take a moment to thank the entire Jamieson team for another successful year and for all the hard work they put into delivering 2022 and for setting us up for success in 2023 and well beyond. I am so proud of this entire team. I'm proud to work with every member of the team, and I am privileged to lead it every day. With that, I'm going to turn the call over to Chris to discuss the fourth quarter results in more details. Chris, over to you.

[Christopher Snowden, executive]

Thank you, Mike, and good afternoon, everyone. In the fourth quarter, revenue increased by 48.5% to $192.8 million, driven by growth in Jamieson Brands and Strategic Partner revenues. Jamieson brand revenues increased by 56.3% to $156 million in the fourth quarter. Youtheory contributed $50.6 million of incremental branded revenue as a result of seasonally higher promotional activity offset by lower retail inventory as a specified partner reduced stock on hand in support of our 2023 innovation plans. Domestic Canadian revenue grew by $5.3 million or 6.3%, reflecting continued consumer demand, higher average retailer inventories in conjunction with a severe cold and flu season and in-year pricing. In international markets, we saw exceptional 41.5% growth in China, reflecting strong consumer demand as the COVID-19-related lockdowns were eliminated in the quarter. In our other international markets, declined by 21%, driven by geopolitical and economic pressures in Eastern Europe and delayed entry into new markets. Our strategic partner revenues increased by 22.4% or $6.7 million, reflecting pricing to maintain existing margins and volume changes of customer products. Gross profit margins decreased by 120 basis points, reflecting the impact of the lower margin profile in the acquired business in the Jamieson Brands segment as well as a higher proportion of strategic partner sales. Within Jamieson Brands, gross profit margins declined by 340 basis points to 41.9%, reflecting the lower gross profit margin profile of the Youtheory brand. Excluding the impact of the acquisition, gross margin within the Jamieson Brands segment remained relatively flat as operating efficiencies were offset by higher facility costs from our capacity improvements in prior periods. Gross profit margin in the Strategic Partners segment increased by 170 basis points to 15.9%, impacted by favorable customer mix, while pricing offset increased supply chain and input costs. Selling, general and administrative expenses increased $13.2 million versus last year, including $4.6 million of specified costs, mainly comprised of Youtheory acquisition and our IT system development and implementation costs. Normalized for the impact of these specified costs, SG&A increased by $8.8 million versus a year ago, reflecting both baseline and additional resources in the acquired Youtheory business and investments in Jamieson brands to support strategic initiatives and marketing. Fourth quarter operating income increased by 28.5% or $8.2 million due to higher contribution and our top line growth in the quarter, offset by specified costs realized for our acquisition and our IT system improvements. On a normalized basis, fourth quarter operating income increased by 46.2% and Reported EBITDA increased by 27.9%, while adjusted EBITDA increased by 44.7% to $48.9 million, driven by higher volumes, partially offset by lower operating margins. Adjusted EBITDA margin decreased by 60 basis points to 25.4%, reflecting the lower margin profile of the acquired Youtheory business included in Jamieson Brands. Net earnings increased by 9.4% to $22.1 million and adjusted net earnings, which excludes specified costs and foreign exchange, increased by 30.6% to $26.8 million. Our earnings per diluted common share was $0.52 and adjusted earnings per diluted common share was $0.62 and 8.3% and 26.5% increase, respectively, compared to the prior year. A reconciliation of adjusted EBITDA and adjusted net earnings is provided at the end of today's press release announcing the company's fourth quarter results. Turning to the balance sheet and cash flow. We generated $40.8 million in cash in the quarter from operations compared to $43.3 million in the year earlier period. Cash from operations before working capital considerations was $4.5 million higher due to increased earnings in the current quarter. Cash generated from working capital increased by $1.9 million in the quarter, driven by the timing of payables and accelerated inventory purchases realized earlier in 2022. Capital expenditures of $2.6 million were relatively conservative during the quarter, and we distributed approximately $7.1 million in dividends during the quarter. We ended the fourth quarter with approximately $126.2 million in cash and available operating lines. Based on our strong cash flow position and earnings today, we have announced a dividend of $0.17 per common share. The dividend will be paid on March 15, 2023, to common shareholders of record at the close of business on March 3, 2023. As Mike discussed earlier, this afternoon, we announced a new partnership with DCP Capital to help accelerate our strategic growth initiatives in China. DCP brings 30 years of successful investing local market expertise and consumer brand experience in China, combined with our high-quality product portfolio and industry-leading capabilities will allow us to maximize our potential in this fast-growing market and bring us closer to a broad base of consumers in China. There are a number of components to this partnership as follows: DCP will contribute approximately $47.4 million or USD 35 million in capital in exchange for a 33.3% ownership share of our company's Chinese operations. In support of Jamieson's global health and wellness strategy, DCP will subscribe for approximately $101.6 million or USD 75 million of preferred shares in Jamieson Wellness. DCP has the option to redeem the preferred shares between the second and fifth anniversary of their purchase. Lastly, DCP will subscribe for warrants to purchase 2,527,121 common shares of the company at an exercise price equal to a 10% premium to the 20-day volume-weighted average share price, subject to an adjustment pursuant to the rules of the Toronto Stock Exchange. The warrants are exercisable between the second and fifth anniversary of the date of their issue. The transactions are subject to customary closing conditions and approvals. We expect these transactions to close concurrently in the second quarter of 2023.Now turning to guidance. We are introducing our outlook for fiscal 2023 and anticipate the following: Net revenue in the range of $670 million to $700 million, reflecting annual growth of 22% to 28%. Adjusted EBITDA in the range of $140 million to $146 million, an increase of 13% to 18% compared to the prior year and adjusted earnings per fully diluted common share of between $1.62 and $1.72, an increase of between 5% and 11% compared to the prior year and including a fully diluted share count of approximately 43 million shares. Additionally, I would like to note the following guidance assumptions. Jamieson Brands segment revenue growth of 24% to 30%, driven by the following: an increase in Jamieson Canada revenues of 3% to 6% compared with fiscal 2022, reflecting continued consumer demand, marketing plans, innovation and the impact of prior year pricing. Youtheory revenue of between $145 million and $155 million, reflecting almost 12% to 19% growth on a pro forma basis, driven by product innovation, expanded e-commerce initiatives and distribution gains in the traditional accounts. An increase in China revenues of 65% to 70%, reflecting a transition to an owned distribution model and the related step-up in distributor pricing. This represents approximately a 25% to 30% growth on a pro forma basis with consumer demand in cross-border e-commerce and distribution gains in domestic retail channels. Our other international revenues are expected to grow between 5% and 20%, reflecting entry into new markets and expansion across the Middle East. Strategic Partner revenue growth of between 15% and 20% in fiscal 2023, reflecting new programs and the impact of pricing in that segment and an outlook for adjusted EBITDA growth and adjusted diluted earnings per share growth as follows: On a full year basis, gross profit to remain consistent with prior year as expected declines in the Jamieson Brands margin is offset by favorable consumer and product mix within the Strategic Partners segment. Jamieson brand margins will be approximately 100 basis points lower, impacted by the inclusion of the lower margin profile of the other business in the first 6.5 months of 2023 and the second quarter transition to an owned distribution model in China. We expect normalized SG&A to increase by approximately 35% to 40% in fiscal 2023, reflecting the acquisition of Youtheory and an accelerated investment in marketing resources and infrastructure to support our long-term growth opportunities in both the United States and in China. Based on the margin profile in the acquired business impacting gross margins and accelerated margin investments and revenues and infrastructure, primarily made to drive long-term growth in the United States and in China, adjusted EBITDA margins are expected to decline by 175 basis points in 2023. In the first quarter of 2023, we anticipate consolidated revenue in the range of approximately $120 million to $130 million, reflecting branded revenue growth of between 17% and 24% and strategic partner revenue growth of 20% to 30%. We expected adjusted EBITDA in the range of between $21.5 million and $22.5 million, reflecting higher volumes offset by lower adjusted EBITDA margins in the acquired business and infrastructure and resource investments required to see future growth in China and in the United States. A complete discussion of our outlook for the first quarter and full year fiscal 2023 results as well as factors impacting our expected performance is included in the outlook section of our MD&A filed this evening. Thank you for joining us this afternoon. It is a privilege to share our results and our milestones with you. And on behalf of the entire Jamieson team, we continue to work together to advance our vision of improving the world's health and wellness. With that, let me turn the call over to our operator, Cynthia for Q&A.

[Operator]

[Operator Instructions] We will take our first question from George Doumet with Scotiabank.

[George Doumet, analyst]

Mike and Chris, maybe just a little bit of background information on what brought you guys together with DCP Capital. And it's a significant amount of capital. So, just wondering maybe what are the plans to deploy that.

[Michael Pilato, executive]

Yes. Thanks, George. I'll go first. So, I appreciate you joining us today. So, the background of DCP, a little bit of history. We've been working just about over a year, 1.5 years now on unlocking our growth potential in China. As you saw in November, we announced the acquisition of the assets of our distributor partner. And through that work, we identified that we would like to have a local partner in China that really understands the market at a deeper level than we do has good relationships that can give us access to channels give us access to top talent, has operational capabilities and a track record of growing brands across China. So, as we got into those negotiations and we went through a whole process, what came out with DCP was the best partner for us. They perfectly meet our values. We've had great relationship with them as we work through this deal. We're quite excited about where they can help us take the business in China. It really was a strategic well thought-out process and plan that we've gone through for some months now, and we've arrived at the final deal with them. I'll turn it over to Chris to talk about the capital because it is a substantial amount of capital. We're quite pleased with the confidence they showed in Jamieson by putting that kind of capital into our organization.

[Christopher Snowden, executive]

Yes. So, there's 2 tranches. One is approximately $50 million in cash going into our Chinese operation. That's really for resources, infrastructure and marketing investments to continue to drive the Jamieson brand forward there and about $100 million in Jamieson Wellness under a preferred share structure that is really for us to reduce debt. Currently, we have no plans to deploy that capital other than for general business purposes going forward.

[George Doumet, analyst]

Can you maybe break out the dollar amount of accelerated investments for China and the U.S. and in your 2023 guidance? And generally, how should we think of the slope of the curve for investments in China over the next couple of years, all it?

[Christopher Snowden, executive]

Well, I think we talked before about really us accelerating that investment. We're not going to give dollar for dollar, but when you look at the fixed cost growth or SG&A growth on a percentage basis compared to our top line, you can really determine what that number is and it's split between infrastructure and marketing. And what I will say is marketing is growing at double the rate of the infrastructure investment. So, the vast majority of these dollars are actually contributing to working brand growth and brand development, both in China and in the United States.

[George Doumet, analyst]

Just one last one for me, Chris. Can you maybe break out the impact of prior pricing on the 3% to 6% guide for revenues at Jamieson Canada?

[Michael Pilato, executive]

Well, that was the mid-single-digit pricing that we took in July 2022. So,, I think if you do the math on that, you'll see that it's quite low.

[Operator]

We'll take our next question Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, analyst]

Maybe just on, I guess, maybe any other details you can share on, I guess, would they be getting a similar type of a dividend or what kind of rate there is on that?

[Christopher Snowden, executive]

There is no planned dividend on the [ pref ] share investment. The warrant is attached to the dividend is what provides them the upside. Just preferred shares... Sorry the warrant that's attached to the preferred shares, is what provides them the upside on that investment?

[Sabahat Khan, analyst]

And then I guess in terms of kind of the plans here on forward, I guess in terms of the ownership interest you took in the China business, sort of is a thought process, there will be some sort of I understand there's a joint board about the operations day-to-day, would they have folks that will be on the management team, I guess, just trying to understand kind of how the day-to-day operations, they are going to go and how deeply they'll be involved in the China suspension?

[Michael Pilato, executive]

Sabahat, Nice to hear from you. So, the day-to-day management team will be run by our team that is in China. So, we're building out a local team. DCP has been actively helping us look for strong talent, and we've been successful in hiring some strong talent there. We will set the overall goals for the year, the budget, the strategy at the Board level. The management team will operate the day-to-day operations, and we'll report into the Board starting probably by weekly to start, but will move to monthly and quarterly as we get rolling there. DCP does have members of their team in China that will actively be participating in terms of helping us unlock growth. But the day-to-day management of the team will be run by the team we've built down there of local Chinese citizens that are in place today and running the business today and transitioning over from Shanghai Healthway.

[Sabahat Khan, analyst]

And I guess just maybe one last one on that part. Your partnership with DCP, was it more of the expertise in kind of retail? Was it product expansion knowledge of the consumer. Maybe if you can share a bit of detail on what drove you to this partner versus working with somebody else?

[Michael Pilato, executive]

I think it was a combination of things. I think that DCP and their partners have shown over decades a strong track record of success in building various consumer brands across China. They understand the retail landscape. They understand the consumer. They understand the e-commerce landscape and they really understand the complexities of doing business in China in such a complex country with many cities and many provinces and many people of different demographics. I think it was a combination of all of it and really just combined as well with the cultural fit with Jamieson. We've met them over a year ago. We've built a strong relationship. They think about the business like we do. They have extreme diligence and discipline driven by both top-line and bottom-line growth. It just felt like a great fit, and we're excited about where we can go with it.

[Sabahat Khan, analyst]

And then just one to you two, I guess, just kind of the inventory [ dropdown ] or inventory reductions you called out, was it across one retailer for them or multiple? And maybe how do you expect or anticipate that 2023 play? I think you said there are some new products coming to market. Does that get going in Q1? Or what kind of [indiscernible]

[Michael Pilato, executive]

So, that issue that I talked about was a successful product that they had that through diligence with that team there, we identified a great opportunity to improve that product in marketplace. It is sold to a key retailer that we'll be looking to take -- we'll be taking it into market, and we started to manage down the inventory of the current product through Q4 a little earlier than we expected. We would expect to see the results of the launch of that product sometime in Q2, and we are focused on doing that. We also have many other new products that we're bringing to market in Youtheory as well. We don't want to get into the details on the call for competitive reasons, but there is a pipeline of products that is coming to market in the U.S. under the Youtheory name that we're quite excited about over the next few quarters. Starting in Q2.

[Operator]

We'll take our next question from Derek Lessard with TD Securities.

[Derek Lessard, analyst]

Good afternoon, everybody. Just one question for me. I saw that earlier that you did have some product expansion from Youtheory into Japan. Maybe just curious about what we can expect in terms of international expansion on that front?

[Michael Pilato, executive]

Yes. Thanks, Derek. So, we are looking to expand Youtheory where in places where it makes sense from a consumer perspective and where we have some relationships. So, we're currently working through our distributor partners around the world to understand where it makes most sense. We have plans to bring that brand to China over the next, call it, 6 to 12 months as we go through this transition in China and get that up and running efficiently. We'll look to bring new Youtheory there. And as we enter into the Japan market, it was in Japan, we've entered with some more new products. It's just an expansion of what we've had most notably through our partnership and their partnership with the key club retailer there.

[Derek Lessard, analyst]

That's helpful. And maybe just one last for me. Definitely, there were some revenue challenges mostly in the international business. Just curious what you've baked in for your 2023 revenue guidance on the international side?

[Christopher Snowden, executive]

So, we've built in a lapping of that challenging environment in Eastern Europe. We see revenues stabilizing there now on a period-to-period basis. So, it's our expectation is once we get to that full year lap, we found a new base and we'll then from there grow from that base.

[Operator]

We will take our next question from John Zamparo with CIBC.

[John Zamparo, analyst]

I wanted to start off in China as well, and maybe you could elaborate a bit on prior answers. I'd like to know what the most immediate changes you plan to make in China are and how you expect them to impact the business? And when you think longer term for your holistic strategy in China, how should we think about the time line to enact the strategy that you now have in place?

[Michael Pilato, executive]

Most notably, what we're doing in the near term, I think Chris talked about it a little bit is, first and foremost, we need to ramp up our investment in brand building with the Chinese consumer. As we didn't control the whole value chain, we didn't control the full strategy in China. We didn't invest to the levels of brand building that we wanted to. So, first and foremost, that investment will be key to get our brand in front of more Chinese consumers, build our business and our equity with those consumers and really get into their everyday lives. Secondly, some channel expansion going on, both from an in-country brick-and-mortar perspective as well as domestic e-commerce perspective, really starting to invest in getting into some of the key customers that we've been in, but growing with those customers and then picking up some new customers. And then we also have some accelerated growth on cross-border e-commerce and have some great talent that we brought on board that has a track record of strong growth in that channel, and we're looking to continue on the momentum that we have in market and accelerated even more.

[John Zamparo, analyst]

That's helpful. And one more on China. What was it that made you consider selling a piece of the existing business rather than just the Chinese operation?

[Michael Pilato, executive]

I think it comes down to the fact that we still want to own our brand in China. We want to have controlling interest in China. We believe in the market. We believe there is a massive upside in the market and huge value to be had there for our brand and for our shareholders. We wanted to sit in a controlling position. We worked hard with our partner that we're currently in transition with to build the business to where it is. We worked hard to ensure a transition from them into our ownership and control the full value chain, and we wanted to still sit in an ownership position of majority there and on our business. I mean it's going to be valuable. I think DCP sees definitely the value of our brand there, was willing to come on as a minority partner and then make the investment into the parent company or into Jamieson Wellness knowing that as our plans are enacted, the value that can come out in this country and in our brand there.

[John Zamparo, analyst]

A couple of other topics on Youtheory. Is there a reason this business can't get to the same or similar margin profile as your domestic business over time? And what would be a reasonable timeline to potentially get there?

[Christopher Snowden, executive]

Absolutely, it can get to similar margins. The historic Jamieson branded business had. We will continue to drive operating efficiency, supply chain efficiency and ideal margins in market as we grow. That will happen over a number of years. As we mentioned before-- They're starting from actually a higher margin position than Jamieson started when I joined the company in 2014. So, it's really just going to depend on how much we invest to drive revenue in terms of managing then how that much of a profit hits the bottom line. But certainly, over time, we expect to grow margins there.

[John Zamparo, analyst]

Understood. And then last one for me. The press release referenced some regulatory changes in international markets ex-China as a headwind. Can you add some more color here? And should we think about that as a longer-term or structural headwind? Or is it temporary? Can you give us a sense of what percent of your international sales are coming from the Eastern European region that's so negatively impacted?

[Christopher Snowden, executive]

So, the regulatory change impacted most of Europe, both Western and Eastern Europe. It's a specific ingredient that was selected as a no longer acceptable for inclusion in a number of our products. So, we're going through the process of reformulating that, and it just takes time to work through that entire hierarchy of product reformulations. That will be corrected over the next 12 to 24 months. It was enough to impact expectations in fiscal 2022 and certainly will be something that we fix over time. We don't see.. These are things that happen time to time, and Jamieson's regulatory team more often than not is in front of that of these. But sometimes you get big changes like this particular one that you just can't get ahead of because it impacts a large number of products and a large number of reformulations?.

[Michael Pilato, executive]

And formulations that are shared across countries. So, it's a complex situation when there's a regulatory change. We see it all the time. This one is just going to take a little time for us to work through it. R

[Operator]

We will take our next question from Justin Keywood with Stifel.

[Justin Keywood, analyst]

Just on the 2023 outlook, the Youtheory revenue expected between $145 million to $155 million. That seems to be similar to when Neutralize was acquired last year on a pro forma basis. My question is if there's organic growth embedded in Youtheory now that it's under Jamieson's umbrella?

[Christopher Snowden, executive]

We did disclose the pro forma growth -- we have disclosed the pro forma growth in the MD&A. It's between 12% and 19% for fiscal 2023. There's some exchange [ NOI ] there as well, but we certainly are, from a growth perspective, excited about the opportunities in 2023, as Mike highlighted those key drivers.

[Justin Keywood, analyst]

And then with the balance sheet improved, is M&A still a priority for Jamieson -- or is there enough going on right now where the focus is on the operations as it is?

[Michael Pilato, executive]

I think as we talked about the last couple of quarters, we've obviously taken on a couple of deals here, both from the Youtheory perspective in the United States in Q3 of last year and the pending transition and transaction in China of our distributors' assets. That's a lot for us to work through. We have teams working on both of these integrations, both of the growth platforms and really moving these businesses forward. I would expect that we're going to probably be a little less proactive on the M&A front for the next, call it, 12 to 18 months we'll be more in reactive mode. However, if the right business came to market at the right price, we would definitely take a look at it. We went into proactive mode for, I would say, 18 months to 2 years, they're trying to get our pillars set up for growth and for long-term growth. So, again, we'll go into a reactive mode. We'll continue to monitor what's out there, but we're not actively pursuing anything or looking to buy anything for probably the next 12 to 18 months as we work through these transitions and deliver on our commitments for 2023 and beyond.

[Operator]

[Operator instruction] We will go next to Endri Leno with National Bank.

[Endri Leno, analyst]

Most of them have been asked, but just a couple on the China investments of DCP first, can you share-- , has DCP partnered can help any other, let's say, non-local or non-Asian brands that you can share with us?

[Michael Pilato, executive]

Yes, they have. If you look in the press release in the bottom there, you'll see some of the brands that they talk about growing. There are North American brands there. If you go on their website, you can see different and more deals that are on there that they have grown, but definitely have taken North American brands and have seen success with them.

[Endri Leno, analyst]

The other question is more kind of, well, the operations here. But like, first of all, raw material costs, are you seeing any kind of inflation in them? Or are they in a good place for your negotiations? And will they necessitate any price increases, for example, in 2023?

[Christopher Snowden, executive]

Yes, I think we're in a good position for 2023. There's been some marginal inflation, but some deflation at the same time. So, we're not planning any major pricing for the Canadian domestic market. As we previously talked, we will price strategic partners as and when that evolves and talked about that impacting our revenues in fiscal 2023 as the full year impact of that pricing in fiscal 2022 effect. So, no planned movements, but certainly, we are keep being abreast of the market and making sure that we react on a timely basis to protect our long-term margins.

[Endri Leno, analyst]

I just wanted to follow up a bit on a prior answer in that the regulatory changes in Europe and you're having to reformulate, do you have to have like a completely separate line for Europe? Or is that something that you can share with your other production for the other regions? And if it were specifically for Europe, I mean, would it make any difference on margins and extra costs?

[Christopher Snowden, executive]

So, that's the complexity of our business where you have differing regulations across different geographies. Our desire is to formulate products that are widely distributable across many of our geographies. And as such, it takes time to ensure that we've got the efficacy, the claims, the ingredients that meet all of those standards across differing geographies so that we can make one SKU that's applicable. That drives efficiency, that drives profitability. Certainly, when you've got larger geographies, you may do geographic specific SKUs like we do in China, the domestic SKUs in China are all specific to that market. So, it's very complex, and we manage that to the best of our ability to drive efficiency through our manufacturing operations. I hope that answers your question.

[Michael Pilato, executive]

When we make a change like what we're talking about here, we will then look to how -- what other countries can we make that change in to make sure that we're making as much of that product as possible. So, that's a whole part of what we do every day when there's a regulatory change.

[Endri Leno, analyst]

That's great. Mike. Last question for me. I mean to the extent that you can share this, is it possible to give a breakdown of the margin for 2023 between Jamieson and Organic or Youtheory and the China operations?

[Christopher Snowden, executive]

I think there's some good information in the MD&A outlook section that will help you understand that. if you haven't pulled it off of the website, that will help you guide you through all those items I referenced.

[Operator]

We will take our next question from Rob Derek with BMO Capital Markets.

[Unknown Analyst]

So, my first question is around the Youtheory expansion into China. Can you help us understand the risk of trading the Youtheory brand, which is a U.S. brand into China, given the trade tensions between the 2 nations.

[Christopher Snowden, executive]

The Youtheorybrand we'll be bringing to China through cross-border e-commerce to start with. That has a very dedicated consumer base that is looking for North American brands or foreign brands. We know that there is an appetite for the category in China. We know that consumers know the brand actually. There is some knowledge of the brand there in China. And we will start out by launching at a paced manner and make sure that what we get in the market is selling and that it's turning to consumers. So, we don't really have any concerns around that at this time. But again, we're focused on the transition right now of our partner to an owned entity in China. We are focused on keeping the Jamieson brand growing. And in the back half of this year, we will start to look to launch Youtheory in a very measured way into China through cross-border e-commerce.

[Michael Pilato, executive]

That's all built into the guidance that we put out for 2023.

[Unknown Analyst]

Got it. Okay. And then on the China expansion, given that the amount of money you're investing in terms of infrastructure and marketing spend, like when do you expect to break even on that investment? Is it like 2 years or 3 years? Well, first and foremost, it's all self-funded, right?

[Christopher Snowden, executive]

First and foremost it's all self-funded so we're not stepping backwards from a profitability perspective. We're investing. And then what we'll do is we'll transition to our previous algorithm in future years where you'll see SG&A grow at or below top line growth across the operation.

[Operator]

Gentlemen, we do have a couple of follow-up questions. Do you have time? We will take a follow-up question from George Doumet with Scotiabank.

[George Doumet, analyst]

Just a quick one for me. In your guidance range for international, it's between 5% to 20% for '23. It's a pretty big range. So, can you maybe help us understand what factors can we determine where we land in there?

[Michael Pilato, executive]

A good part of that is expansion to new markets. So, there is some risk from a regulatory perspective. And just remember that, that does not include China. So, from a base perspective, even though it's a wide percentage, it's only a couple of million dollars.

[Operator]

And we have a follow-up question from John Zamparo with CIBC.

[John Zamparo, analyst]

I just wanted to come back to the guide on Youtheory for $145 million to $155 million for 2023. When this deal was announced, the pro forma for '22 was nearly $160 million. I'm trying to square that with the commentary if that's going to grow 12% to 19% pro forma. I don't know that there's that meaningful in FX headwind there. Can you just help us understand that a little bit better?

[Michael Pilato, executive]

What we can talk about is our guide. We guided -- I think it was $160 million to $163 million in total. I want to get perspective... Yes. Sorry, $68 million to $72 million. We ended up at the bottom end of that range in the period. We talked about the key drivers of that being the down management of inventory based on innovation, ending Q4. So, as that cycles now into Q1 and Q2, you'll see lower volumes in Q1 and Q2 until that innovation is launched mid-Q2 fiscal 2023.

[John Zamparo, analyst]

So, like said another way, the Youtheory revenue in '22 was approximately 15% below what you're guiding to for '23. Just based on the guide for '23, the actual number for '22, and I know you didn't own it the whole time, but the pro forma number for '22 or just the Youtheory brand itself for '22, it was roughly 15% below what you're guiding to for '23? I'm just saying if the growth for 23 is 15% on top of '22, then the '22 actual number for Youtheory is 15% below this year.

[Michael Pilato, executive]

Yes. So, there was delayed innovation, FX differences and that down management of inventory in channel at our key retailers. Those are the key items affecting their full year revenue.

[Operator]

There are no further questions at this time. Mr. Pilato, I will turn the conference back over to you for any additional or closing remarks.

[Michael Pilato, executive]

Thanks, Cynthia, and thanks, everyone, for joining us today. We are pleased by our Q4 and FY 2022 results, and we're now laser-focused on executing against our 2023 goals. Our company has transformed and grown and we are ready to take on our second century of success based on everything that we've laid out today. I want to thank you all for joining us for your support and look forward to speaking to you all soon. Thanks so much.

[Operator]

This concludes today's call. Thank you for your participation, and you may now disconnect.