Jamieson Wellness Inc

TSX:JWEL

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss financial results for the first quarter of 2020. [Operator Instructions] Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization from the company. As a reminder, today's call is being recorded. On the call today from management are Mark Hornick, President and Chief Executive Officer; and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Hornick, please note that a press release covering the company's first quarter 2020 financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section of 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 and 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 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'll now turn the call over to Mr. Hornick to get started. Please go ahead, sir.

[Mark Hornick, President, CEO & Director]

Thank you, James, and good afternoon, everyone. Thank you for taking the time to join us today and discuss our first quarter 2020 financial results. We sincerely hope that you're all staying healthy and safe during this unprecedented time. I'm going to walk through the highlights of the quarter and discuss the current impact of COVID-19 and what measures we're taking as a company to address the pandemic. And then I'll turn it over to Chris to walk you through our financials. During the first quarter, we saw a significant increase in new consumers and elevated demand for immunity products across all markets as the world began to face the COVID-19 pandemic. During the first quarter, we generated 17% revenue growth, 15% growth in adjusted EBITDA and 21% adjusted net income growth, mainly as a result of increased consumer focus on health and wellness. First, our Jamieson Brands segment grew by 25%, led by a 22% increase in domestic sales, reflecting continued success of our consumer and trade programs as well as the acceleration of sales due to the higher impact of higher demand for immunity and general health supplements. We've seen strong category trends with the Jamieson Brands significantly outpacing category growth in our food, drug and mass merchandise accounts. Our international sales increased 51% this quarter as a result of strong demand in multiple geographies, led by growth in China and Europe, as demand for immune supplements increased. We continue to broaden our portfolio in China and have seen performance above our expectation in the Chinese market through our cross-border e-commerce segment. While we have rephased our new product registration schedule for domestic retail due to the temporary closure of the China FDA, we continue to target 30 products for the domestic market by the end of the year. In our Strategic Partners segment, business continued to perform in line with our expectations. Recall last year that volumes were heavily weighted to the first half given the timing of new programs. As such, during the first quarter, we saw an 11% year-over-year decline in strategic partners, which is actually better than the midpoint of our range. Now let me take a minute to discuss the current COVID-19 pandemic and what we're doing to address it. Firstly, of course, the health and safety of our employees, customers and communities is at the forefront of every decision we have made in recent months and will continue to be so as we operate in a challenging environment. Part of our employees and manufacturing distribution and other critical on-site functions, we've increased sanitation, maximize physical distancing and where possible, establish shift gaps to avoid congestion during shift changeovers. Effective mid-March, we introduced the teamwork bonus for all frontline employees working in our manufacturing and distribution facilities. Our team has done an excellent job in maintaining operations and meeting demand as we focus on ensuring that our consumers continue to have access to the products they need. At the onset of the pandemic in January, we were able to secure additional adequate sources of raw materials to maintain supply consistency, and that has continued to serve us well through the quarter. I want to take a minute to thank each and every one of our employees for all their hard work during these difficult times. We are so proud of how the Jamieson family is handling the current situation, taking care of our customers, our consumers and each other. With that, let me turn the call over to Chris to discuss the first quarter financial results and our current guidance.

[Christopher Snowden, CFO & Corporate Secretary]

Thank you very much, Mark, and good afternoon, everyone. As Mark mentioned, the first quarter was a time of unprecedented demand for health and wellness products made to COVID-19 pandemic. We worked hard to ensure we continue to deliver our trusted products safely to our customers around the world. In the first quarter, revenue increased 16.5% to $84.5 million, driven by strong growth of the Jamieson brand, partially offset by an anticipated decline within our Strategic Partners segment. By segment, Jamieson Brands revenue increased 24.5% to $69.8 million, consisting of 21.9% growth in the domestic revenue and 51.3% growth internationally. The strong growth in domestic regions was as a result of a significant increase in consumer demand and accelerated category sales, reflecting both new consumers to the category and some acceleration of sales from existing customers as a result of the COVID-19 pandemic. The international growth reflected strong gains in multiple geographies, particularly in China and in Europe, as demand for immunity products significantly increased. Revenue in our Strategic Partners segment decreased, as anticipated, by 11%, this is due to the timing of new programs that occurred earlier in the year, partially offset by revenue related to the change in billing practices for key strategic partner customers. Total gross profit increased 14.9% to $31.3 million, and gross margin decreased by 50 basis points to 37%. The decrease in gross margin percentage was due to physical distancing initiatives implemented in our production facilities in response to COVID-19 and lower strategic partner margins. In the Jamieson Brands segment, gross profit margin declined 40 basis points, driven by the physical distancing initiatives, which reduced throughput and offset operating efficiencies that formally accompany higher volumes. The Strategic Partner segment gross margin declined 770 basis points year-over-year, primarily driven by customer mix, the billing change of a key customer and the timing of volume-related efficiencies to be realized later in 2020. Selling, general and administrative expenses increased by 6.9% to $17.6 million. Excluding the impact of lower nonrecurring costs of $700,000, normalized SG&A increased by $1.8 million in the quarter due to the timing of marketing programs and investments in resources for our e-commerce and international growth priorities. Operating income increased 24.7% to $12.4 million, and operating margin increased by 90 basis points to 14.6%. Adjusted EBITDA increased 15.2% to $16.7 million, and adjusted EBITDA margin decreased by 30 basis points to 19.7%. The decline in adjusted EBITDA margin reflects the lower reported margin in our Strategic Partners segment and the physical distancing measures that impacted the branded gross margin and efficiencies in our operations. In the first quarter, interest expense and financing costs were $1.9 million, compared to $2.4 million in the prior year. The difference was primarily due to lower interest rates as a result of our amended and restated credit facility from Q3 2019. Our reported net income was $8 million in the first quarter compared to $5.4 million in the prior year. On an adjusted basis, net income increased by 20.6% year-over-year to $7.8 million or $0.19 of diluted EPS. All of the adjustments to net income are described in today's press release and included in the adjusted net income reconciliation table at the end of the release. Turning to the balance sheet and cash flow. We generated $2.9 million of cash from operations during the first quarter compared to cash invested in operations of $9.9 million in the prior year. Cash from operating activities before working capital considerations of $12.6 million was $3.5 million higher primarily due to increased earnings in the first quarter. Lower cash used in working capital reflects a onetime increase in safety stocks in the prior year that did not recur in the first quarter of 2020. Capital expenditures during the first quarter were $2.9 million, and we paid $4.3 million in dividends. We ended the quarter with $107 million in cash and available operating lines. Now with that, let me turn to guidance. We are maintaining our 2020 outlook and anticipate the following: net revenue in a range of $364 million to $376 million, representing top line growth of 5.5% to 9%. This compares to $345 million in revenue for 2020. Adjusted EBITDA in the range of $80 million to $84 million or 5.4% to 10.7% growth over fiscal 2020, and adjusted earnings per fully diluted share of $1.02 to $1.10. Additionally, I would like to note some assumptions to assist you in modeling. We anticipate Jamieson Brands segment growth of 6.9 -- 6% to 9% in fiscal 2020, including 3% to 5% growth in our domestic brands, reflecting the impact of the new Jamieson media launch in the fall of 2020; our 2020 innovation plans; and strong specialty brand growth across e-commerce, food and drug channels. While branded volumes in Canada will be up to 15% higher through the first half of 2020, we will take until the end of the second quarter to assess the full impact of accelerated purchases on our full year expectations. Approximately 20% to 35% growth in our international business, driven by performance in China as well as growth in existing and new international markets. This estimate includes the impact of slower domestic rollout in China, following the COVID measures taken early in the first quarter in China. We expect strategic partner revenue to grow by approximately 5% to 10%, with the change from a tolling to turnkey arrangement with the customer accounting for approximately half of the expected growth. We continue to expect normalized SG&A increases of 6% to 9% to support increased marketing to accelerate growth in our key international markets, plus additional resources to support our e-commerce initiatives. We're assuming interest expense of approximately $7 million to $7.5 million. Additionally, our guidance reflects an assumption of an exchange rate of CAD 1.35 per U.S. dollar, and an effective tax rate of approximately 28%. Our estimate for fully diluted shares is between $40 million and $40.5 million. Our outlook is based on the current situation and existing impacts and challenges of COVID-19. There are potential incremental risks associated with COVID-19 that could impact our outlook, such as increased physical distancing measures, potential store closures, disruptions to transportation, manufacturing closures, extended pressure on gross margins and generally higher operating and -- operating costs and inefficiencies. While physical distancing measures in Canada have significantly impacted certain industries, our industry and supply chain are considered essential, and we continue to produce and sell across our retail channels. We have adapted rapidly to the changing environment to minimize the risks of our business interruption due to COVID-19, while ensuring a steady supply of products to our consumers across our geographic markets. A complete discussion of our outlook and factors impacting our expected performance in 2020 is included in the outlook section of our MD&A that was filed today. In closing, we remain focused on health and wellness of our employees, consumers, customers, and community as we navigate this unprecedented time. We continue to work hard to deliver our trusted products to consumers around the world. And with that, I'd like to turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] We'll take our first question today from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, Analyst]

Just I guess on the quarter, maybe on the sales metric and what you saw during the quarter. I guess, are you able to identify, to some extent, the growth you would have expected sort of assuming normal operations and what the incremental uptick was? And also, kind of second part of that, were there any incremental costs that offset some of that additional sales? Or is it more of the cost increases start in Q2 onwards?

[Mark Hornick, President, CEO & Director]

Okay. Sabahat, so I'll start off, and then I'll turn it over to Chris to talk about the cost part. It's more difficult than normal to segment out what the results of COVID were for a couple of reasons. The first is, we had a ton of momentum in Q4 this year, especially on our green line business here in Canada, which is our Canadian Jamieson branded business. And we were off to double-digit sales in January and February based on continued momentum behind our sales and marketing campaigns before the real effect of COVID hit. So the business was already in really good shape. Since then, of course, we've had a spike in volume that's continued throughout March in April and it's kind of settling down to some extent in May, although it remains elevated, of course. Based on the consumers' need to show up as healthy as possible, especially from an immune perspective. So that's where the bulk of our sales or incremental sales are coming from. It's difficult to know at this time, how much of that is consumer mode, and how much of that is increased assumption. And it will be difficult to tell that for quite some time because the only way to know that is to find out what the consumer actually did with the product, whether they bought it and saved it or whether they've been taking it and at what rate. And the purchase cycle in our products is typically 3 to 4 months and can be longer. So it will take us a while to really understand what the result of that was. But I can tell you a couple of things that we know for sure, based on our own data as well as our customer data. The first thing is the Jamieson brand is growing much quicker than the market. So we had really solid double-digit market growth in Q1, and Jamieson grew another 50% on top of that in terms of rate of growth being a significant amount of market share. Two basic reasons for that. One is our portfolio is much more developed in immune products than that of our competition. And the second thing is what we've seen not only in our category, but in many of the other categories in that consumers gravitate to is that there is a flight to quality trend. And consumers are going for brands where they have the most trust and where they believe the product quality is the highest. And so we are seeing that push market share and consumption of our brand abnormally high compared to our normal market share. We also know that we're getting a lot of new consumers who are not vitamin consumers before, and we are getting up to 2/3 of those new users choosing the Jamieson brand as their first entry into the category, which is great. We're also seeing our existing users use more product and choose more of the Jamieson lineup compared to what they may be using as their staple product on a day-to-day basis. All of that will develop, and we'll get more insight into what to expect for the future, but it will take some time. And that's just based on seeing how the path of COVID evolves as we're in an unprecedented time. And then understanding how our consumer is adapting. So that's the sales and volume part of the discussion. And now I'll just turn it over to Chris to comment on the cost associated with managing all of that in a COVID environment.

[Christopher Snowden, CFO & Corporate Secretary]

Hi, Sabahat. So when we talked earlier, we were one of the first company to really perceive the risk and we had adopted a number of social distancing measures in our facilities in the first quarter. So while those practices have accelerated, there is a good amount of cost in the first quarter. Q2 will bought bear more of that. And then following Q2, if things go as we all hope, those costs will diminish as we get closer to the end of the year.

[Mark Hornick, President, CEO & Director]

The bear fact is, though, that our #1 priority is keeping our people safe. Then whatever cost that is, we will bear. We will look to alternatives, and we will look to other sources of production in order to help balance that out. And we are business people as well. But we will not shortcut or take any chances on our employee's health. And so that may materialize into seeing some capital being advanced that we were going to plan for 2021 coming in 2020. I'm sure Chris will talk about that more towards the end. In order to help get a little bit more capacity in place to hit surge volumes that we still are seeing in the marketplace. But for the foreseeable future, the cost of doing business is elevated, and it's solely for the reason to keep our people place.

[Sabahat Khan, Analyst]

All right. And then just a follow-up on your commentary around whether it was sort of pantry stuffing or when that people use it. I'm just curious, based on what you saw in Q1, do you have data to decipher whether it was existing customers that maybe bought more because they were worried? Or do you think through this process, you perhaps picked up new customers or people that weren't using VMS products before that may have come into the market? And now the overall addressable market might be larger coming out of this?

[Mark Hornick, President, CEO & Director]

We have data to support both, the extent of which we can't segment out at the time. We know we're getting new consumers. We're getting a higher percentage of them than our market share. We know that our brand is growing much quicker than the overall market is growing. And we see that in our market share results, of course. And we know that consumers are using more. To what extent the prebuy and all the rest of it separates, it will take us some time to figure out. But the -- in general, what we do know is consumers, in general, are integrating proactive health solutions into their routines at much higher levels than in the past. We hope that a lot of that habit will stay. We know from previous experience that the longer someone retains a habit, the more likely it is to become ingrained and become permanent. We know that from our 100 years of experience in the marketplace. And all of that would yield to long-term market expansion. That would be caused by just an overall, much greater awareness and concern for health and particularly in immune health. What that actually looks like numerically, it will take a while to understand, and it largely depends also not only on how we respond and how the industry responds, but also to how the path of the COVID pandemic materializes. And because this is unprecedented, of course, it would be far premature to be able to forecast that. But what we are seeing now is just a reflection of the consumers concern to show up every day as healthy as they can, and we're very proud that we can help them do that.

[Sabahat Khan, Analyst]

Okay. And then maybe just the last one from me on the outlook. Obviously, you're reiterating your 2020 numbers that you provided earlier. Just want to get the thought process behind that, I guess, I think you mentioned briefly that the volumes are still somewhat elevated. So is it just a precautionary measure, just in case volumes and demand falls off in the back half of the year because of what you're seeing now? Or is it the costs are still elevated and you're not sure at this time? I just want to get the thought process around what are the moving parts that you're seeing that are causing you to sort of reiterate guidance at this point?

[Mark Hornick, President, CEO & Director]

We're optimistic on volume, of course. But whatever number we would choose would be wrong. And so it would be premature to make a call. So we have a number that's been pretty well thought out when we made our original business plan. So we're going to stick to that for now. And then we will adjust that when we have very solid basis to do so. Also, we just need to see how this path of COVID is going to occur. We don't know what's going to happen in September, October, November. And quite frankly, no one does. And so while we're optimistic about our business this year, we have a lot of time to work through. We've got a lot of months ahead of us. They are all uncertain, and there is nothing we can really use to help us forecast what that's going to look like. And so we're taking what we believe is a responsible approach. We are optimistic, but cautious, and we're taking this thing day by day.

[Operator]

Next, we'll hear from George Doumet with Scotiabank.

[George Doumet, Analyst]

Just one quick clarification for you guys. So I think you previously mentioned, I think in your preliminary Q1 commentary about you saw pretty broad-based demand. Just wondering, has that remain broad-based? Or are you kind of seeing more, a bigger focus towards immunity area and other kind of more COVID-19-related I guess, segments?

[Mark Hornick, President, CEO & Director]

No. The demand definitely is still broad-based. I have to check for sure, but across the 15 categories that we operate in on the vitamin space, I don't think we're declining anywhere. I think the -- there has been a lot of consumer purchases of immune product. But our -- as I mentioned before, our purchase cycle is 3 to 4 months. So for example, if you buy a 120 count of chewable vitamin C, if you're just using that yourself, it's going to take you 4 months to use up the bottle. So we had a lot of initial purchases. What remains to be seen and is what the repeat rate looks like, how quickly the repeat is, and that will materialize over the next few months. But for now, we've seen volume coming to be more realistic yet still elevated on immune products, and the rest of our portfolio continues to perform quite well in terms of consumer demand. How that trends forward will greatly depend on how the consumer is using the product at home. And for that, we need to follow that closely. But it's still too early to know how that's going to materialize and amongst, which consumer groups.

[George Doumet, Analyst]

Okay. That's helpful. And just on the contract with higher related volumes that we're generating. And have you seen, or may we expect to see in Q2, Q1 -- Q2, sorry, any issues of sourcing some of the inputs to our supply chain for good? Have you seen maybe a broader kind of pickup in inflation in some of our inputs?

[Mark Hornick, President, CEO & Director]

So as Chris mentioned, we were quite proactive in making sure that we secured raw materials quite early. So even by the middle of January, we had ramped up our raw material inventory quite significantly in order to see. I guess, one of the benefits, I guess, of having a significant business in China and being able to talk to our 50 partner employees that we have in China on everyday basis is that we really had very early indications of what this could look like. We did our first -- just for interest, we did our first employee safety training on COVID-19 on January 26. So from our side, we were -- we saw this quite early. So we were able to ramp up raw materials. And now with things getting back to normal from a supply chain standpoint around the world, especially in China, for example, we have not seen any interruption in raw materials. And we are in control from a pricing standpoint year-to-date. So we haven't seen any indication of margin pressure from a supply chain standpoint, other than all of the efforts that we've had to put in place in the manufacturing operations in order to keep the employees safe, which has been significant.

[George Doumet, Analyst]

Okay. Just one last one, if I may. I think, Mark, you alluded to this earlier. On free cash flow conversion, can you maybe talk -- maybe, Chris, can you talk a little bit about your expectations for CapEx may influence moving forward some of the capacity projects? And also working capital, just maybe talk a little bit about how you expect that to trend for the remainder of the year?

[Christopher Snowden, CFO & Corporate Secretary]

Yes. So full year, we expect to invest between $5 million and $10 million in working capital. That's obviously a significant step down from the prior year or from a normal perspective. That will depend on the timing of sales. We expect the timing of those sales to occur earlier in the year compared to last year. So that will put us in a better working capital position exiting the year. From a CapEx perspective, we're still working through the specific projects that we can accelerate, while continuing to meet our customers' demands. But you could certainly see between $5 million and $10 million -- sorry, between $10 million and $15 million in capital projects being planned for this year. Just how much of that we will get executed will remain to be seen. But up to $15 million is what we're looking at right now.

[Operator]

Endri Leno with National Bank has our next question.

[Endri Leno, Associate]

So I'll start maybe just from different -- a little bit of a perspective. So I mean in terms of -- you're saying that it's a little bit early to kind of discern what exactly the split and the growth of volume has been. I mean, would you have any -- only insights from China, given that they had a spike earlier than everybody else and things have sort of normalized at this point in time? And can we draw any parallels to the Canadian market?

[Mark Hornick, President, CEO & Director]

It's difficult to draw parallel because the Jamieson brand position as well as our portfolio is different here than it is in China, for sure. Although we are -- we do have a significant development for immune products in China. To comment on the Chinese business, what we can say is that given that we had a very well rooted position in cross-border e-commerce, the consumer has a lot of access to our product. And they are consuming that product at an elevated level. So our -- the demand for our products coming through the cross-border -- cross-border e-commerce channel is significant. It's definitely elevated versus our expectations. And we continue to overdeliver versus our business plans in China despite the fact that we've prioritized the continuity of cross-border e-commerce for practical reasons, over rolling out the physical distribution of our more than 20 licensed products, which has suffered restrictions based on movement stoppages in China. Now that's kind of reignited now, and we're building quite a bit of distribution on those products and sales from that will come. But overall, despite everything that's happened in China, our business results are higher than what we expected, and they continue to be so even as far as today. I think you know what, we're being optimistic, but we're being cautious. And that's how we're going to handle that.

[Endri Leno, Associate]

Okay. No. And I think -- I mean, there has been like lots of demand. And I mean, you could, I guess, keep the prices stable, but have you seen any kind of action on price by our competitors? Have they tried to kind of push any promotions that you might have held them to match or any price pressures at all?

[Mark Hornick, President, CEO & Director]

We haven't seen anything out of the ordinary that's visible to us. What discussions our competitors are having with customers is their own affair. But we haven't seen anything materialize in the market that we would consider to be abnormal. The demand for our product, as I said, is elevated. We are gaining market share quite rapidly recently. And the other dynamic is that retailers are still promoting the category and competing with each other as much as they ever have. They are still -- they still need to remain viable. They still need consumers to shop their store. They need consumers to come, and vitamins are an important category of the consumer. And so there is still a great deal of attention paid to our category by our customers from a promotion standpoint. And as the Jamieson brand continues to gain market share and that becomes a lot more efficient for our customers, so it would be reasonable to suspect that the excellent support that we have been receiving from our customers will continue given the elevated demand for our brand.

[Endri Leno, Associate]

Great. And just a couple more for me. A quick one first. Have you -- how did the U.S. rollout developed in this quarter? I mean was there any pump in revenue? So what you’re seeing on the U.S. side?

[Mark Hornick, President, CEO & Director]

So we launched everything as expected. We're in the market. Products are performing well. They have the same dynamic that we have here, where you have a consumer flight to very well-known brands. And so it is not the easiest time to launch a brand-new brand in a geography that's for sure. So we have prioritized investment in existing geographies, of course, here in Canada as well as China and Europe. We are taking the U.S. path slower, so we're going to use it as an opportunity to test quite a few hypothesis as to how to be the most successful in the U.S. market. We are -- I wouldn't say -- no, we are managing our marketing investment conservatively in order to make sure that we learn as much as we can during this time, and then are well positioned then to expand the brand quicker in the U.S. with those learnings. So right now, we are gravitating to where the most consumer demand is with our spend, and we're optimizing that in order to take the opportunity to learn more in the U.S. as far as -- versus trying to go full blast, at a time where consumers are really focusing on brands they already know. Does that make any sense?

[Endri Leno, Associate]

Yes. Great. And a very last one for me. Is there, if you're seeing -- are you seeing elevated demand? I mean it is continuing to a certain extent. What about utilization of your plant? I mean, do you have enough room to accommodate any growing demand? And if some of it were to stick as you hope, like how much of it can you accommodate? I mean where does it require more capital investments, say, next year?

[Mark Hornick, President, CEO & Director]

The capital really is in advance of already planned capital on a path to be able to build for very solid long-term growth of the brand, both domestically and internationally. I think before, what we've talked about from an investment side is that, our goal was to be able to build enough capacity to meet a very solid level of top line growth over the next 5 years, with the capability of servicing then approximately $100 million of additional demand, whether that was from great success in China, great success in the U.S. or over and above success on our base business just from the execution. So we're still on that path. And what Chris has talked about is really a forward spend of 2021 capital into 2020. And to try to give the operations more bandwidth to produce, and that should have the effect of lowering some of the costs that we're experiencing in order to get enough production out of our network without sacrificing anything to do with the robust safety program that we have in place. So really, Endri, it's just advancing what we were already going to do, and our outlook from a capacity standpoint remains as it has been before. We are just going to ramp up faster in order to have the ability to meet extreme -- more extreme spikes in demand, should that be the path the whole COVID endemic takes us.

[Operator]

Next, we'll hear from Matt Bank with CIBC.

[Matt Bank, Associate]

I wanted to ask on e-commerce. Obviously, a lot more sales are going online these days. So just curious how you think about e-commerce. How that will impact market share as customers buy more online? Obviously, your market shares' up overall, but just curious the e-commerce impact specifically. And then also how you think about how that impacts your trade spend in your promo debt?

[Mark Hornick, President, CEO & Director]

So from an overall e-commerce side, we are experiencing what we believe to be the same trends as we're experiencing in bricks-and-mortar. So our brand is selling at much higher rates than we had anticipated as consumers are looking to buy the brand that they trust. As well as they want to buy it in whatever way suits them. And of course, everyone's seen there's a lot more people that feel much more comfortable making those purchases from their home versus going out. So we're accommodating that. We have a pretty robust presence on e-commerce, and we have our own direct-to-consumer e-commerce as well which has seen a very large expansion as consumers are using the Jamieson website as a reference point to gain knowledge and information about the products. They find it very convenient to make their first purchase of those products than on our website. I'm not sure whether that will materialize into a permanent large stream of revenue or not. Not the intention. The intention is kind of grow the category by making purchases convenient. When the consumer is at their peak point of curiosity and doing research, we think that it's best for the category to make it as easy as possible then for the consumer to immediately get that product into their home to try it. But we're seeing our e-commerce business grow at the same or better than what we've seen in bricks-and-mortar. So we're the #1 brand that we want to be available where the consumer wants to shop. And so that's the trend that we're seeing there, Matt.

[Matt Bank, Associate]

Okay. And then I wanted to ask on acquisitions. Just curious what your appetite is and also how the opportunities look for M&A in this environment?

[Christopher Snowden, CFO & Corporate Secretary]

So there were -- there was quite a lot of activity in Q4 rolling into Q1. When COVID-19 hit, a lot of that activity got pulled back. So we're kind of in a waiting scenario. We're focusing on our business today. That said, as opportunities come to market, we have the new operating line in place, plus the accordion of $200 million. So we're well funded from an acquisition perspective. We're just waiting for the right opportunity to come about.

[Operator]

Now we'll hear from Tania Gonsalves with Canaccord Genuity.

[Tania Rae Gonsalves, Analyst of Healthcare]

So a few for me here. One, are there any countries today where you have a strong presence, but perhaps don't sell your immunity products today and maybe it warrants an expedited launch?

[Mark Hornick, President, CEO & Director]

The short answer to that is apart from the U.S. where we don't yet have a strong presence, the answer is no. Most of how we got established in our international markets was really through the products that were big here. So lots of vitamin C, some vitamin D, et cetera. So for interest, if anything, this is kind of accelerated country interest. So for example, we just launched vitamin, Jamieson Vitamin C in the U.K. based on customer requests. And so you can find us in the U.K. whereas 2 quarters -- or a quarter ago, we didn't have a business in the U.K. So we're getting more opportunity to distribute the Jamieson brand because of the immunity SKUs, but there isn't a white space really in any country where we're strong, where we don't already have a pretty significant immune presence.

[Tania Rae Gonsalves, Analyst of Healthcare]

Excellent. That's exactly what I was going at to see if any of the launches were accelerated. Now in terms of your strategic partners, given the increased demand across the VMS space, I'm wondering if you can talk to your capacity today. And have you been approached by any new strategic partners that perhaps have run out of capacity in their own wheelhouse and now need to outsource some of it?

[Mark Hornick, President, CEO & Director]

So we haven't seen anything direct. And we're not really in a position to take on major new strategic partners now, given just how much demand there is for our own brand, both here and internationally. But just in the spirit of transparency, we haven't got any large inbounds like that. But it doesn't mean it wouldn't happen, but we haven't engaged in anything so far, I can tell you straight up.

[Christopher Snowden, CFO & Corporate Secretary]

I think adding to that, Mark, is just the fact that our strategic partner business is really focused around our facilities that are -- that require the incremental volume to drive efficiency. And that's really our soft gel business and our powder business. So from that perspective, our strategic partners are focused on categories that are normally associated with those formats. And an immunity or a vitamin C-type product is not typical of a soft gel product.

[Tania Rae Gonsalves, Analyst of Healthcare]

Okay. Excellent. And could you also confirm, are the cross-border e-commerce platforms the only source of online sales in China? Or do you sell online in that geography through other partners?

[Mark Hornick, President, CEO & Director]

Well, yes. So there's 2 online channels. Cross-border e-commerce is open to any international brand that negotiates with the platform, and the platform finds it attractive and you can demonstrate that there'll be consumer demand for your product. And those are original formulated domestic product like our Canadian Jamieson, we sent to China. It gets stickered with Mandarin, and then that gets sold through cross-border e-commerce. If you have product licenses, which we have a significant amount of, you can also sell-through domestic e-commerce, which is a different channel, but those products have to be produced with the Chinese Blue Hat approval and with those formulations, et cetera. So we -- in our case, we sell both. But other international brands haven't got that far yet.

[Tania Rae Gonsalves, Analyst of Healthcare]

Okay. Okay. Now in terms of -- you're producing -- you're manufacturing most of your product -- or all of your products domestically today. As your presence in China grows, does it warrant -- like would you hedge against the Chinese yuan eventually?

[Mark Hornick, President, CEO & Director]

Let me ask Chris about -- from a currency stage to give you our currency policy. But for the most part, everything we do is in U.S. dollars.

[Christopher Snowden, CFO & Corporate Secretary]

Yes. We sell the vast majority of our products into China in U.S. dollars to our partner over there. So any devaluation in the currency is borne by our distribution partner.

[Tania Rae Gonsalves, Analyst of Healthcare]

Excellent. And then last one for me here. You talked a little bit about M&A and how everything is just on pause right now. Given your balance sheet today, what kind of transaction size would you feel comfortable with?

[Christopher Snowden, CFO & Corporate Secretary]

It really depends on the synergies and the fit. If there was a partner with a $200 million in revenue with 20% EBITDA margin that had very high-quality market position and available manufacturing capacity, that's a target that we would certainly consider. That would obviously require us to consider equity at the same time, but it really depends on the value proposition and the synergies associated with the opportunity.

[Mark Hornick, President, CEO & Director]

The other thing to add to that, Tania, is, given the suite of organic opportunities that we have. M&A will, of course, is definitely something that we're looking at. But we'll be pretty scrutinous as to what we choose to do. Is that a word? Given -- sorry, everybody. Given that we just have so much on the plate organically that has so much promise associated with it.

[Operator]

[Operator Instructions] We'll hear from Mr. Ammar Shah with Eight Capital.

[Ammar Shah, Research Analyst]

The majority of my questions actually have been asked, just a couple for me. First is looking out into April and I guess, a little bit in May. Is there any reason that you could see across your markets where that pantry loading trend has started to dissipate even slightly? Or is it still kind of going full force across your markets globally?

[Mark Hornick, President, CEO & Director]

There was definitely in March, especially in March, there was definitely some pantry loading happening just as everyone kind of simultaneously reacted to the possibility and the uncertainty of what shopping could look like in the short term. So you had a lot of people stocking up on a lot of stuff. Whether it was vitamins or anything else. As we've seen April and May come, we still see volumes at very elevated levels, but not at the -- forgive the expression, but the panic level that we saw when -- in the first few weeks when the consequences of coronavirus in terms of the ability to shop, were not known. So things are settling to an elevated level of demand since that happened. Some of that is a reflection -- some of that we would have anticipated given the brand in itself is doing quite well. And some of that is based on new users, current users using our product, and potentially users in household sharing that product with a broader assortment of people who live with them in order to kind of get everyone's immune system specially as strong as it can be in these times. So we take this week by week. Our demand signals are very strong. But then again, as we said before, the path of COVID and how this is going to unfold over the next few weeks and months is still unknown, and so we're being cautiously optimistic.

[Ammar Shah, Research Analyst]

Okay. Great. That's very good color. And I guess looking further out, I guess, post-COVID, is there any new innovation for the year that you guys were originally or maybe still are thinking about that you'd like to highlight or you think going down -- could be another leg of organic growth?

[Mark Hornick, President, CEO & Director]

Innovation right now in any category for -- especially for the bricks-and-mortar retailer, which is the vast majority of our business, is really tough. So when you -- if you're a store and you missed a new product, you typically have to -- you missed more than one at the same time, you typically have to rearrange your shelves. That requires a lot of work. I don't know if you've ever been in a store when they're what we call relining the store. But they take all the product off, they take all the stickers off. They reorganize the shelf and put in all the new product. They have disposals for the product they're not going to sell anymore. It is a massive undertaking. And we typically have our people in the store, as other companies do, helping the retailer do that. All of that has been parked because of COVID. And so what we've seen is a much slower ability to execute, especially for retailers that do these kind of typical shelf resets in May, all of that's kind of on hold. So we're selling a lot of innovation online, but less in the food drug mass distribution. We have proactively slimmed down our new product innovation launches in the second half of the year. We'll focus on immune product naturally. And that gives us quite a much broader innovation pipeline for 2021 as we've streamlined this, without sacrificing revenue because with the elevated levels of sales that we're seeing across the products that consumers already know and trust, our -- the consumption of our brand is well ahead of expectations. So that's how we're balancing that.

[Ammar Shah, Research Analyst]

Okay. And I guess just one final one for me, and then I'll turn it back. Could you -- I mean, just maybe even directionally, just talk about how the, call it, Jamieson brand did versus some of your sports nutrition brands in the quarter and maybe even after? I know it's all consolidated into one now, but even in some directional commentary, whether that be for pantry loading or just elevated demand comparing the two?

[Mark Hornick, President, CEO & Director]

Oh, sure. Just the COVID response of our government, and rightly so, has left a lot of distribution outlets for our specialty brands temporarily closed. So if you were a health food store in a mall, you have not been able to do business. As well as our protein business has had some short-term softness for sure because all the gyms are closed. So by -- so we've seen a lot of -- we have seen some channel shifting because of this. I mean people that were interested in health food-type formulation is more interested in the Jamieson brand. And I feel for health food retailers right now because through no fault of their own, just based on their physical presence, they haven't been able to do business or they haven't been able to do it nearly at the rate they were before. The bright light on that, of course, is that as things open up, we've already seen stores with their own doors to be able to do curbside business, which they hadn't been able to do for the past several weeks. And then as things open up, we should see that distribution channel open. But for now, there's been a lot of pressure in that area of the business. And I guess, that's the benefit of having a portfolio where when things happen in some areas, you can make it up in others, and that's what you're seeing. But we do definitely feel for our health food partners right now. And it's not been easy to be an independent retailer, for example, and told that you're not allowed to do business.

[Operator]

We have a follow-up from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, Analyst]

Just a quick follow-up. In terms of the Strategic Partners segment. So what are the expectations, I guess, on a full year basis? Revenue is up, but just based on kind of your outlook, do you think it will be a net positive year on the EBITDA line for that segment? Or is most of the growth going to come from the branded side this year?

[Mark Hornick, President, CEO & Director]

Actually, I think based on everything we know now, from strategic partners, which, obviously, they have much more forward visibility than we do. But based on everything we've been communicating, there's no -- we have no reason to change our expectation on what the strategic partner volume is going to look like for the full year. We may see some quarter-to-quarter movement based on demand and the nature of their portfolios and their nature of their distribution. But from everything we can see so far, there is no reason to change our expectations for the full year on Strategic Partner.

[Operator]

And that will conclude today's question-and-answer session. I will now turn the conference over to Mr. Hornick for any additional closing remarks.

[Mark Hornick, President, CEO & Director]

All right. Well, thank you again, James, and thanks, everyone, for your time. I can safely say on behalf of myself, Board of Directors and our management team, there's never been a time in the company's history where we have been so proud of our employees and how they've been able to work through this. We're taking this day by day, as we said, and we're prioritizing, keeping everyone safe. We're very pleased, as Chris mentioned, to be declared essential, especially here in Canada, and we'll look to do our very best to continue to meet consumers' needs for health and wellness products as the year progresses. Thank you very much for your time.

[Operator]

That will conclude today's conference. Thank you for your participation. You may now disconnect.